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Is Taiwan Semiconductor a buy?

It’s time to talk about a major semiconductor name. Here is the breakdown on $TSM, otherwise known as Taiwan Semiconductor.

Current Price: $125.94

52/Wk High: $142.20

52/Wk Low: $42.70

Market Cap: $653.1 Billion

Dividend: $0.3527 / 1.08% Yield

Read below for the breakdown!

Taiwan Semiconductor ($TSM) is the largest semiconductor foundry company in the world, with over 499 customers as of 2019 and around 279 different technology products.

Taking a look at the company’s customer list, Taiwan Semiconductor works with the likes of AMD, Nvidia, Apple, Marvell Technologies, Qualcomm, and many more major companies.

As of late, the semiconductor sector has been on fire, resulting in a strong 54.05% increase in Taiwan Semiconductors stock price throughout the last six months, leading investors to wonder if the stock is still a buy.

Digging into the numbers, Taiwan Semiconductor beat Q4 2020 expectations with an EPS of $0.97, better than the analyst’s EPS consensus estimate of $0.95. On a year over year basis, EPS improved 32.88%.

Furthermore, revenues increased 22% throughout the quarter to $12.68 billion. For comparison, the same time 2019 revenues level was $10.4 billion.

Shifting into margins Taiwan Semiconductor reported a gross margin of 54% for Q4, along with an operating margin of 43.5% and net profit margin of 39.5%.

Going through Taiwan Semiconductor segment by segment, 5-nanometer shipments represented 20% of total wafer revenues, 7-nanometer 29%, and 16-nanometer 13%.

On a final segment note, other advanced technologies accounted for a strong 62% of total wafer revenues.

Rounding out FY 2020, Taiwan semiconductor reported revenues of $45.51 billion, representing a significant increase over the FY 2019 revenues level of $34.63 billion.

Gross profit also significantly improved throughout the full year, totaling NT$711.13 billion, much better than the FY 2019 gross profits level of NT$492.70 billion.

Management was upbeat about the quarter.

“Our fourth quarter business was supported by strong demand for our industry-leading 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications,” CFO Wendell Huang said.

When it comes to guidance, management is bullish, expecting revenues of $12.7 billion to $13.0 billion for Q1 2021.

Rounding out guidance, Q1 gross profit margin is expected to land between 50.5% to 52.5% while the operating profit margin is expected to land between 39.5% to 41.5%.

Shifting into the balance sheet the numbers are solid.

Total Debt: NT$345.264 Billion

Total Liabilities: NT$911.054 Billion

Total Assets: NT$2.760711 Trillion

Cash & Short Term Inv: NT$791.477 Billion

On a valuation basis, Taiwan Semiconductor does trade at a premium.

Price to Earnings: 35.14x

Forward Price to Earnings: 27.56x

Price to Sales: 11.73x

Price to Book: 9.84x

Price to Cash Flow: 16.30x

Management has been quite effective.

Return on Equity: 29.84%

Return on Assets: 20.62%

Return on Invested Capital: 27.16%

Given the numbers, the analysts are bearish with a mean price target of $111.50/share, representing a -11.47% loss.

It is also important to note that the high price target is $149.00/share, representing an 18.31% gain, while the low price target is $74.00/share, representing a -41.24% downside.

The big money is less involved as well with just 18.56% of Taiwan Semiconductor being owned by institutions. Top holders include Sanders Capital, Capital World Investors, and Capital International Investors.

On a technical basis, Taiwan Semiconductor could be presenting opportunity. According to the six-month charts the MACD recently crossed to the downside with significant momentum within a range of 3.61 down to 1.89.

The six-month charts are also indicating an RSI of 45.77 and CCI of -94.7949, both of which are on the lower end.

In short, Taiwan Semiconductor is a solid company with growing revenues, a very strong rolodex of customers, and is in a quickly expanding industry.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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