Dit artikel is misschien een hart onder de riem. . . . . .
Khurram Rao
Currencies, tech, short-term horizon
Profile| Send Message| Follow (31 followers)
ASML May Be The Best Stock In The Semiconductor Universe
Jul. 21, 2015 12:58 PM ET | 4 comments | About: ASML Holding N.V. (ASML)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Despite cyclical downturn of semiconductor industry, ASML Holding continues to report YoY revenue and margin expansion.
While taking EUV lithography into consideration, the stock is substantially undervalued even in the current scenario.
Next uptick wave could lead share price to post new highs towards $113-114 mark. Such a move would be triggered by another news related to additional EUV-based equipment orders.
ASML Holding (NASDAQ:ASML) reported its second quarter fiscal 2015 (2QFY15) earnings last Wednesday. The company posted a beat on non-GAAP earnings per share (NYSEARCA:EPS) by three euro cents. Following the earnings call, company shares traded higher and concluded the day up 3.50% to $106.68. However, the share price is down 6.65% year-to-date (YTD).
Over a longer horizon, the stock has gained 151.49% in the last five years. This capital return program excludes an annual dividend which ASML Holding pays at the end of first fiscal quarter each year. In comparison, the broader market, S&P 500 Index, gained 99.84% during the same period.
The semiconductor industry has been experiencing a cyclical downturn these days. Big names, such as Intel Corporation (NASDAQ:INTC) and Micron Technology (NASDAQ:MU) have lost 20.84% and 46.64%, respectively, of their market capitalization YTD. Industry experts are not sure how long this downtrend would last.
As a semiconductor industry vendor, it was naturally expected by ASML Holding to exhibit a decline in its net sales or at least profit margins. However, its topline number has expanded 8.68% year-over-year (YoY) and net income margin improved by 207 percentage points this year so far.
The management aims to achieve €10 billion in net sales by fiscal 2020 (FY20). Moreover, it wants to expand company EPS, or net income, three fold over the same period. During its November 2014 investor presentation on long-term goals, it projected a gigantic 14% operating margin advancement over the next six years.
The primary driver for this anticipated improvement is ASML's EUV lithography-based equipment launch in 2014-15 and its expected rapid adoption by the market from 2017 onwards. The company holds 100% market share in this specific niche.
The purpose of writing this article is to evaluate the intrinsic worth of ASML while keeping a soft industry outlook in mind.
Financial Valuation:
The following table summarizes the financial performance of ASML during past six years. Every figure is based on a US GAAP disclosure and mentioned in billions of euros, except for percentages.
Metrics/ Yr
FY09
FY10
FY11
FY12
FY13
FY14
Net Sales
1.596
4.508
5.651
4.732
5.245
5.856
Net Income
-0.151
1.022
1.467
1.146
1.015
1.197
Dep & Amort
0.158
0.160
0.177
0.190
0.242
0.265
Interest
0.023
0.034
0.023
0.034
0.023
Tax Rate
-12.02%
17.76%
11.02%
0.37%
0.78%
6.00%
CapEx
0.105
0.129
0.301
0.190
0.659
0.361
WCInv
0.171
-0.094
0.306
0.102
0.354
FCFF
0.889
1.430
0.847
0.521
0.755
Sales Gr
182.46%
25.35%
-16.26%
10.84%
11.65%
NI Margin
-9.46%
22.67%
25.96%
24.22%
19.35%
20.44%
Dep/Rev
9.90%
3.55%
3.13%
4.02%
4.61%
4.53%
CapEx/Rev
6.58%
2.86%
5.33%
4.02%
12.56%
6.16%
WCInv/Rev
3.79%
-1.66%
6.47%
1.94%
6.05%
FCFF Gr
60.91%
-40.80%
-38.49%
44.98%
Source: Company 10-Ks
Trends in sales and net income margin suggest a somewhat stable outlook for the company. Other measures like depreciation, capital spending and working capital investment ratios also demonstrate a sustainable pattern. The tax rate, however, remained unpredictable over the recent past.
As per management guidance, I simply projected net sales to hit the €10 billion mark by the end of this decade. ASML needs to exhibit even lower growth than its past to achieve this goal. Net sales expanded by CAGR of 29.69% during the last six years.
However, net income margin projections were a bit tricky. As of now, I can only defer a major portion of anticipated margin improvements, as mentioned in the opening paragraphs, from FY18 onwards. By that time, the company will be successfully supplying EUV technology on a considerable scale.
Remaining measures are forecasted to follow their respective historical averages over the studied time horizon. The tax rate is projected to remain 11%.
Metrics/ Yr
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
Sales Gr
9.33%
9.33%
9.33%
9.33%
9.33%
9.33%
NI Margin
22.44%
24.63%
27.03%
29.67%
32.56%
35.74%
Tax Rate
11.00%
11.00%
11.00%
11.00%
11.00%
11.00%
Dep/Rev
4.57%
4.57%
4.57%
4.57%
4.57%
4.57%
CapEx/Rev
6.25%
6.25%
6.25%
6.25%
6.25%
6.25%
WCInv/Rev
3.32%
3.32%
3.32%
3.32%
3.32%
3.32%
Following fiscal 2020 (FY20), free cash flow to firm (FCFF) is guesstimated to grow 2.5% annually on a perpetual basis. The necessary inputs that aided in estimating weighted average cost of capital (WACC) is tabulated as follows.
Beta
1.20
MRP
4.40%
Rf
2.36%
Ke
7.64%
BBB+ Spread
1.50%
Kd
3.44%
D/V
2.88%
WACC
7.52%
By applying a discounted cash flow (DCF) valuation model, enterprise value is found to be €51.37 billion. After deducting €1.15 billion of long-term debt, the market value of the equity came in at €50.22 billion. With 432.94 million shares outstanding, the intrinsic worth of ASML is €116.01 , or $125.64 (€1 = $1.0830, as of Jul 20, 2015). The share price is currently undervalued by over 24%.
Conclusion:
ASML Holding is definitely one of the best stocks in the semiconductor universe. Contrary to its operating industry, the company is exhibiting healthy sales expansion and margin improvement. In my opinion, ASML could easily hit the $113-114 mark in the next uptick wave over the coming months. Probably more news related to new EUV orders would trigger such a move.