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On Tuesday, Susquehanna lowered its rating on shares of GlobalFoundries, Inc. (NASDAQ:) from “Positive” to “Neutral” and lowered its price target from $65 to $48. The company's analysts cited a lack of short-term catalysts and a slow recovery trend as the main reasons for the semiconductor company's deteriorating outlook.
The analyst noted that while downside risks to GlobalFoundries' consensus estimates appear limited, the absence of a material catalyst is likely to have a negative impact on the stock price. The expected improvement in earnings from the first half of 2024 to the second half of 2024 is expected to be gradual, leading to a downward revision of the forecast.
This weakening in expectations is due to a combination of factors, including a lack of content growth and reduced confidence in the company's ability to expand with new materials and products.
In the broader supply chain, competitors are emphasizing growing contributions from silicon photonics (SiPh) as adoption of 800G networking is set to accelerate later this year. In contrast, GlobalFoundries is not seen as capitalizing on this trend.
Additionally, Taiwan Semiconductor Manufacturing Company (TSMC) has become unexpectedly aggressive in the smartphone space, bundling different types of silicon for different applications, which is a previously unexpected move for GlobalFoundries. This has become another significant challenge.
As a result of these market developments, Susquehanna has lowered GlobalFoundries' earnings per share (EPS) forecast to $3.00 by 2026, down from its previous forecast of $3.50 to $4.00. The updated $48 price target is based on 16x peak EPS and 21x adjusted 2025 EPS, reflecting lower growth prospects.
The downgrade comes at a difficult time for GlobalFoundries. The company's stock price has fallen 13% since the beginning of the year and 20% year over year, compared with a 19% rise in the Semiconductor Index (SOX). Year-to-date, it's about 65% year-over-year.
The analyst was not happy to downgrade the stock during an economic downturn, but said that earnings potential remains at $3 until the company can demonstrate improved execution in terms of content growth and product diversification. He emphasized that there are likely to be restrictions. According to Susquehanna, the current risk-reward profile does not justify maintaining a positive rating.
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