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ASML stock remains top pick despite lower EPS outlook - BofA

EditorEmilio Ghigini
Published 09/06/2024, 03:26 PM
ASML
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On Friday, BofA Securities updated its position on ASML Holding NV (AS:ASML:NA) (NASDAQ: ASML) stock, reducing the price target to €1,064 from the previous €1,302. The firm sustained its Buy rating.


The revision reflects a change in the earnings forecast for the fiscal years 2025 and 2026, which have been decreased by 11% and 8% respectively.


This adjustment is due to lowered revenue expectations, aligning BofA Securities' outlook with the consensus estimates for sales and earnings per share (EPS) at €36.7 billion/€30.82 and €40.2 billion/€34.46 for the respective years.


The analyst at BofA Securities highlighted that ASML's stock is currently trading at 17.4 times its forecasted FY25 enterprise value to EBITDA (EV/EBITDA), which presents a highly attractive risk/reward profile. This valuation is notably below the company's five-year median multiple of 26.6x and also beneath the lower end of its five-year range, which spans from 18.1x to 37.6x.


The rationale behind maintaining the Buy rating, despite the reduction in the price target, is based on the belief that the stock's current multiples offer a significant buying opportunity. The analyst emphasized that the lowered earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates and reduced multiples—from 31x to 28x—reflect a sector-wide de-rating rather than company-specific issues.


ASML, a leading supplier in the semiconductor industry, is considered by BofA Securities to be their top pick among European semiconductor capital equipment (Semicaps) stocks. The recent decline in the stock's price is viewed as an enhanced opportunity for investors to purchase shares. This perspective is maintained even with the newly adjusted price objective of €1,064, equivalent to $1,149, which has been set in light of the current financial climate and market trends.


In other recent news, ASML Holding NV has been a hot topic among financial analysts. Morgan Stanley adjusted its price target for ASML stock, citing recalibration of estimates and maintaining an Overweight rating. The firm anticipates a significant recovery in ASML's order book by 2024, with expectations of a considerable earnings increase in 2025.


On the other hand, UBS downgraded ASML's stock from Buy to Neutral, expecting a deceleration in the company's earnings per share growth rate. In contrast, Barclays upgraded ASML's stock from Equalweight to Overweight, viewing the recent drop in ASML's share price as an attractive investment opportunity.


ASML's CEO, Christophe Fouquet, commented on the US-led initiative to limit the company's exports to China, suggesting these measures appear to be driven by economic motives. He also highlighted the impact of these restrictions on China's chip manufacturing progress. Prime Minister Dick Schoof of the Netherlands voiced his intention to consider the economic interests of ASML, the largest company in the country and the biggest tech firm in Europe.


These are some of the recent developments surrounding ASML Holding NV. The company's financial projections for 2024 and 2025 have been reiterated, emphasizing the demand for AI chips despite an irregular recovery in the computer chip markets. The financial and geopolitical landscape continues to evolve, with analysts and investors closely monitoring the situation.


InvestingPro Insights


As BofA Securities revises its stance on ASML Holding NV, investors may find additional context through real-time data and insights from InvestingPro. ASML's market capitalization stands at a robust $312.97 billion, reflecting its significant presence in the semiconductor industry. Despite recent adjustments in price targets and forecasts, ASML maintains a high price-to-earnings (P/E) ratio of 42.18, indicating a premium valuation by the market, which could be attributed to its status as a prominent player in its sector. The company's revenue for the last twelve months as of Q2 2024 is reported at $27.26 billion, with a gross profit margin of 51.44%, showcasing its ability to maintain profitability.


InvestingPro Tips highlight that ASML has experienced a notable price decline over the past three months, with a 24.3% drop in total return, which may present a potential entry point for investors. Moreover, the company has demonstrated a commitment to shareholder returns, maintaining dividend payments for 18 consecutive years and reporting a dividend growth of 8.84% in the last twelve months as of Q2 2024. For those considering a long-term perspective, ASML has delivered a strong return over the last five years. To explore additional insights, investors can access over 14 InvestingPro Tips for ASML, providing deeper analysis and metrics to inform investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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