Chardan Capital Markets yesterday initiated coverage of independent foundry TowerJazz Ltd. (Nasdaq: TSEM; TASE: TSEM) with a "Buy" recommendation and target price of $3, 140% above yesterday's close of $1.21 on Nasdaq. Chardan is the first foreign investment house to initiate coverage of the company since 2008.
Chardan analyst Jay Srivatsa said that TowerJazz is a "compelling turnaround story." TowerJazz has heavy debts due to investment in its Fab2 at Migdal Ha'Emek, it has been losing money since 1997, and it has undergone management changes. TowerJazz CEO Russell Elwanger has repeatedly said at conferences in the past few months that the company will become profitable in the second half of 2010.
"We believe TowerJazz could achieve profitability in the third quarter of 200 and become the leading player in the specialty foundry business in 2010." Srivasta says. "The combined company was the third largest, pure-play foundry specialty vendor in 2008 with sales of $386 million, according to iSuppli Corp."
"In 2009, TowerJazz added Intersil to the list of customers that includes RF Micro Devices Inc. (Nasdaq: RFMD), Skyworks Solutions Inc. (Nasdaq: SKWS), International Rectifier Corporation (NYSE: IRF), Vishay Siliconix and Atheros Communications Inc. (Nasdaq: ATHR) among others," notes Srivasta.
Srivasta believes that the shift from Analog IDMs to foundries could favor specialty foundries such as TowerJazz. He favorably points to the fact that TowerJazz bucked the industry trend by raising its guidance for the fourth quarter of 2009 to $98-102 million, reflecting 25% midpoint growth over the third quarter, and that it expects $500 million revenue in 2010, a "massive 67%" growth over 2009.
Srivasta predicts that TowerJazz's revenue will rise from $298.2 million in 2009 to $464.8 million in 2010, and $534.5 million in 2011. He predicts that its earnings per share will rise from $0.21 in 2009 to $0.50 in 2010, and $0.60 in 2010. With an earnings multiple of 2, the share trades at significant discount to its peers, and is therefore undervalued.
TowerJazz's share rose 5.6% at the opening on Nasdaq today to $1.32, giving a market cap of $235 million. The share rose 8% on the TASE to NIS 4.92.
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2010
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