Maxim Group has initiated coverage of specialty foundry Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) with a "Buy" recommendation, but with the lowest target price among investment houses covering the company: $1. The target price is 21% above Tower's market price.
Maxim Group analyst Ashok Kumar previously worked at Rodman & Renshaw, which covers Tower. In late 2010, he gave Tower a target price of $2. Chardan Capital Markets, which has also covered Tower for a long time, gives it a target price of $2.50, which it has never reached.
Kumar says that research firm Gartner Group estimates that the semiconductor industry's revenue will rise from $30 billion in 2011 to $45 billion in 2016. In his review, Kumar mentions the companies' full utilization of their production capacity and healthy demand.
Like other analysts, Kumar believes that Tower will see a jump in revenue toward the end of 2012. His target price reflects a p/e ratio of 1.8 on Tower's expected earnings for 2013 ($0.56 per share).
Kumar's review includes a very interesting sentence about Tower's capital notes, which were issued to its controlling shareholder, Israel Corporation (TASE: ILCO), and to Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI). He expects dilution of Tower's current shareholders when 150 million new shares come on the market in the near term. He does not explicitly mention capital notes, but Tower is known to be in talks with the banks to write off half of the capital notes and convert some notes into shares.
Last week, Tower published a disappointing financial report for the first quarter, in terms of revenue, but analysts believe that the company will meet its full-year revenue guidance of $800 million.
Paul McWilliams, editor of the Next Inning Technology Research newsletter, believes that Tower will meet its guidance, and that it will report at least $200 million revenue for the fourth quarter, and that it will reach $1 billion revenue in 2014.
As for Tower's capital notes, McWilliams says, "There was no mention of the capital notes during the conference call. Therefore, I don't imagine there is any change in status at least to the extent Tower can discuss publicly. The bottom line here is I remain bullish on Tower and hold fast to my prior projections."
Tower's share price rose 3.5% in morning trading on the TASE today to NIS 3.28, after falling 1.1% on Nasdaq on Friday to $0.82, giving a market cap of $261 million.
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2012
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