U.S. equity markets got off to a slow start this week with the S&P 500 and the Dow Jones industrials both closing essentially flat Monday and the Nasdaq up by about 0.2%. Tuesday’s premarket trading was somewhat better, probably thanks to a retreat in the price of crude oil.
While big U.S. banks take center stage in this first week of September-quarter earnings results, there are several others worth noting. Two Dow stocks and the world’s largest chipmaker report quarterly earnings before markets open Thursday.
Last Friday, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) reported strong September sales that pushed quarterly revenue above analysts’ estimates. Meeting demand for Apple’s new iPhone 13 models gets much of the credit for the boost. The concern among investors is that TSMC, as it’s known, also has to keep automakers supplied with lower-priced silicon, and that eats into margins for high-priced components such as those the company makes for Apple.
Last week, TSMC and Sony announced a joint venture to build a new chip plant in Japan at a cost of around $7 billion. That investment is part of a $100 billion commitment to build six new foundries over the next three years, including one in Arizona. Massive capital spending always gives investors the jitters, and TSMC’s plans are no different.
Of just 10 analysts covering the firm, eight have Buy or Strong Buy ratings on the stock and the other two rate the shares at Hold. At a recent price of around $111.30, the upside potential based on a median price target of $135 is 21.3%. At the high price target of $204, the upside potential is more than 83%.
For TSMC’s third quarter, analysts are looking for revenue of $14.73 billion, which would be up 10.6% sequentially and 19.5% higher year over year. Adjusted earnings per share are expected to come in at $1.04, up 11.8% sequentially and up 83% year over year. For the full fiscal year, EPS is forecast at $4.01, down 44%, on revenue of $56.25 billion, up 18%.
TSMC stock trades at 5.1 times expected 2021 EPS, 4.3 times estimated 2022 earnings and 3.6 times estimated 2023 earnings. The stock’s 52-week trading range is $83.16 to $142.20, and the company pays an annual dividend of $1.83 (yield of 1.66%).