by Ian Harvey
October 16, 2020
Yesterday, Taiwan Semiconductor, the world's leading chip foundry, reported that its third-quarter net profit climbed 36% and revenue increased about 30% on solid demand for high-end chips.
Stock Options Made Easy “Armchair Trader Series Members” have already made 100% on this trade, which was executed on Tuesday, September 29, 2020. On Monday the potential profit hit 142%.
Should we be re-entering with another options trade due to this pull-back?
TSM has become the world’s largest contract chipmakers. Many of the top technology companies look to TSMC’s fabrication plants to manufacture their custom chips.
TSM reported earnings yesterday, Thursday, October 15, 2020.
Taiwan Semiconductor earned 90 cents per American depositary receipt on sales of $12.14 billion in the September quarter; rising 14.7% from the second quarter and 21.6% from the year-earlier period. Analysts expected the company to earn 81 cents a share on sales of $11.93 billion. In the year-earlier period, it earned 62 cents per U.S. share on sales of $9.45 billion.
“Our third quarter business benefitted from the strong demand for our advanced technologies and specialty technology solutions, driven by 5G smartphones, HPC and IoT-related applications,” said Wendell Huang, VP and Chief Financial Officer of TSMC.
“Moving into fourth quarter 2020, we expect our sequential growth to be supported by strong demand for our industry-leading 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications.”
Moving Ahead to the fourth quarter, Taiwan Semiconductor expects to generate revenue of $12.55 billion, based on the midpoint of its guidance. In the year-earlier period, it reported sales of $10.6 billion. That would translate to year-over-year sales growth of 18.4%.
Let’s Have A Look At The Recommendation…..
** OPTION TRADE: Buy TSM JAN 15 2021 85 CALLS at approximately $4.80 (Up to $5.30).
Place a pre-determined sell at $9.60.
Also include a protective stop loss of $1.95.
“Taiwan Semiconductor Mfg. Co. Ltd. (ADR)(NYSE: TSM) — commonly referred to as TSMC — has become the world’s largest contract chipmakers. Many of the top technology companies look to TSMC’s fabrication plants to manufacture their custom chips.
The company is currently responsible for providing 5-nanometer and 7-nanometer processors for all newer versions of Apple's iPhone. Additionally, all of NVIDIA and AMD's next-generation CPUs and GPUs are made using the company's semiconductors.
TSM stock has been on a growth path for the past decade, a rate that accelerated over the past five years. It’s had its ups and downs, but there’s no arguing with overall gains of nearly 300% since 2015.
While the tech sector has been hammered in September, TSM stock has largely bucked the trend.
Clearly, this ‘A-rated’ stock has legs, making it one of the best semiconductor stocks to buy.
The Pandemic Effect.....
The COVID-19 pandemic has acted as a catalyst to digitize economies across the world, increasing the demand for Taiwan Semiconductor's core business products.
With many smartphone chips coming from TSMC’s foundries and 5G having a breakout year, TSMC’s second quarter revenue was up 28.9%, while profits were up 81% year-over-year. And the company is expecting that boost in demand for its silicon chips to increase, telling investors: “Moving into third quarter 2020, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by 5G smartphones, HPC and IoT-related applications.”
Taiwan Semiconductor Manufacturing's has obtained lead in advanced semiconductor manufacturing over the past few years, and that lead only seems to be getting bigger. Last month, rival Intel, one of the last chipmakers that manufactures its own chips, admitted that it had run into a design flaw for its 7 nm manufacturing process, and would be falling some 12 months behind schedule. Intel had already ceded the leading-edge node lead to TSM in 2018, and that lead only seems to be getting bigger.
Advanced chip manufacturing is hard, but TSM's years of experience making a wide variety of semiconductors has given it a knowledge and process lead that other manufacturers are struggling to match. In fact, rival GlobalFoundries threw in the towel on competing with Taiwan Semi on the leading edge back in 2018. Intel itself even hinted that it may outsource some manufacturing going forward, likely to TSM. The U.S. government also recently subsidized TSM to build a new fabrication plant in Arizona on national security grounds.
It seems TSM has built itself a formidable moat in chip manufacturing.
Taiwan Semiconductor last posted its quarterly earnings data on Thursday, July 16th.
The semiconductor company reported $0.78 earnings per share (EPS) for the quarter, beating the Zacks' consensus estimate of $0.73 by $0.05. Taiwan Semiconductor Mfg. had a net margin of 36.96% and a return on equity of 27.42%. The company had revenue of $310.70 billion for the quarter, compared to the consensus estimate of $273.44 billion.
During the same period last year, the company earned $2.57 earnings per share. The firm's revenue was up 28.9% compared to the same quarter last year.
TSM will next report earnings on the 15th October, 2020.
The company is expected to report EPS of $0.81, up 30.65% from the prior-year quarter. The most recent consensus estimate is calling for quarterly revenue of $11.45 billion, up 21.84% from the year-ago period.
For the full year, Consensus Estimates are projecting earnings of $3.14 per share and revenue of $43.59 billion, which would represent changes of +46.05% and +25.86%, respectively, from the prior year.
The U.S. government's move to block shipments of certain technology products to Chinese chip foundry SMIC, or Semiconductor Manufacturing International Corp., a state-backed chipmaker and a key part of Beijing's buildout of its domestic chipmaking industry, will definitely benefit foundries outside of China, such as Taiwan Semiconductor Manufacturing.
The SMIC trade ban likely only impacts systems used for leading-edge chip production, Susquehanna analyst Mehdi Hosseini said in a note to clients Monday.
Last year, Trump escalated simmering tensions with China by going after one of its flagship companies Huawei. The Trump administration released “a rule that restricts government agencies from doing business with Huawei, the giant Chinese maker of telecommunications equipment and smartphones.”
Taiwan Semiconductor stopped taking new orders from Huawei. But to sweeten the pot for TSM stock, on the same day that the Commerce Department announced its new order, TSM disclosed “it is opening a new $12 billion advanced chip foundry in Arizona with support from the state and the U.S. federal government.”
Taiwan Semiconductor has received a consensus recommendation of "Buy" from the ten research firms that are currently covering the stock. One equities research analyst has rated the stock with a sell rating, two have issued a hold rating and seven have assigned a buy rating to the company.
Several equities analysts have recently commented on the company…..
JPMorgan Chase & Co. reissued a "buy" rating on shares of Taiwan Semiconductor Mfg. in a research note on Monday, July 27th.
Credit Suisse Group raised shares of Taiwan Semiconductor Mfg. from a "neutral" rating to an "outperform" rating in a research note on Monday, July 27th.
Macquarie raised shares of Taiwan Semiconductor Mfg. from a "neutral" rating to an "outperform" rating in a research note on Friday, July 24th.
Finally, Zacks Investment Research cut shares of Taiwan Semiconductor Mfg. from a "buy" rating to a "hold" rating in a research note on Wednesday, September 16th.
The stock currently trades for about 23.4 times price to sales, which is well worth the incredible growth performance the company can deliver. Keep in mind that Taiwan Semiconductor's operations are also yielding an impressive return on equity of 28.5%. The company's stock has gained more than 78% during the past year.
TSM has a quick ratio of 1.26, a current ratio of 1.40 and a debt-to-equity ratio of 0.06. Taiwan Semiconductor Mfg. has a 12-month low of $42.70 and a 12-month high of $86.79. The company has a market capitalization of $409.08 billion, a PE ratio of 27.39, and a price-to-earnings-growth ratio of 1.28 and a beta of 0.94. The firm's 50 day moving average is $79.72 and its 200-day moving average is $61.85.”
Analysts Thoughts After The Report.....
Analysts are generally positive on Taiwan Semiconductor with Wedbush Securities analyst Matt Bryson reiterating his outperform rating on TSM stock. He described the company's third-quarter results as "strong" and its fourth-quarter guidance "robust." Its revenue outlook topped consensus estimates.
"With foundry capacity likely remaining tight through Q4, and TSMC still in the midst of several favorable trends (5G transition in handsets, customer share gains in HPC, etc.) we see no reason to shift our positive stance," Bryson said in a note to clients.
“Revenue shortfall from HiSilicon restriction is likely to be compensated by other customers’ share gains, which reflects TSMC’s technology leadership in the foundry industry. Despite the recent share price rally, we still see risk-reward skewed to the upside thanks to key secular trends in, such as 5G, AI, and high-performance computing benefiting TSMC,” said Charlie Chan, equity analyst at Morgan Stanley.
“CPU outsourcing from x86 vendors
presents incremental upside, thanks to TSMC’s cutting edge technology. Amid an
uncertain macro environment, TSMC’s cash-flow generating ability should allow
it to pay out at least NT$10 DPS annually, which makes it a relatively
defensive global tech stock with strong downside support,” Chan added.
Taiwan Semiconductor stock dipped 0.62% to $88.05 in after-hours trading Thursday; however, the stock is up over 50% so far this year. This could be a good opportunity to execute another call options trade on Taiwan Semiconductor stock.
Where Is Taiwan Semiconductor Share Price Headed Now?
Will Taiwan Semiconductor Share Price Start to Rise When The Market Opens?
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