On Wednesday, JPMorgan adjusted its price target for ASML Inc. (NASDAQ:ASML), a leading supplier of semiconductor manufacturing equipment, reducing it to $1,148 from the previous $1,207. Despite the price target adjustment, the firm maintains an Overweight rating on the stock.
The revision follows ASML's guidance for the year 2025, which the company is typically reliable in meeting barring manufacturing issues. The discussion among investors is expected to shift towards the company's prospects for the year 2026. JPMorgan forecasts that if ASML can achieve sales close to €40 billion in 2026, as they are predicting €39 billion, the company could reach or slightly exceed earnings per share (EPS) of €33.
The future performance of ASML, according to the analyst, hinges on the development of the consumer semiconductor market in the second half of 2025. A stronger market by that time could set the stage for the company to hit the projected sales range for 2026. The analyst also provided potential upside scenarios based on future earnings multiples. If ASML trades at a multiple of 25 times its 2026 EPS, the stock could see over 30% upside potential, and at a multiple of 30 times, the upside could surpass 55%.
Historically, ASML's price-to-earnings (P/E) ratio has fluctuated between 20 and 40 times. The firm's stance is that if ASML can reassure investors of its long-term growth trajectory during the Capital Markets Day (CMD), the stock is likely to trade between 25 to 30 times its earnings. The potential for a higher valuation exists if the market becomes convinced that ASML can reach the higher end of its 2030 guidance.
In conclusion, JPMorgan remains optimistic about ASML's stock, with a slight adjustment to the price target to $1,148 to account for a 4% reduction in their 2026 EPS estimate.
In other recent news, ASML Holding (AS:ASML) N.V. has revised its 2025 revenue forecast to EUR 30 billion to EUR 35 billion, attributing this adjustment to a slower recovery in traditional markets and an expected normalization of China sales. The company reported robust Q3 2024 results with total net sales reaching EUR 7.5 billion and a gross margin of 50.8%. Furthermore, ASML projected Q4 2024 net sales to be between EUR 8.8 billion and EUR 9.2 billion.
The company's revised outlook for 2025 also includes a gross margin expectation of 51% to 53% and anticipates operational expenses to be at the upper end of EUR 5.6 billion to EUR 6.1 billion. Despite these revisions, ASML sees potential growth drivers in AI and semiconductor applications, noting strong demand for AI-related applications and rising interest in High NA technology.
ASML anticipates a decline in DUV revenue in 2024, which is expected to be offset by growth in the non-China segment. The company also expects EUV shipments to be pushed into 2026 due to customer delays. However, the company projects healthy growth for its installed base management in 2025.
InvestingPro Insights
ASML's current market dynamics, as reflected in InvestingPro data, offer additional context to JPMorgan's analysis. The company's P/E ratio stands at 36.89, aligning with JPMorgan's historical observation of ASML's P/E fluctuating between 20 and 40. This valuation is further supported by an InvestingPro Tip noting that ASML is "Trading at a high earnings multiple."
Despite recent market challenges, with the stock price falling 31.51% over the last three months, ASML maintains a strong financial position. The company boasts a robust gross profit margin of 51.44% and an operating income margin of 30.66% for the last twelve months, demonstrating its operational efficiency in the competitive semiconductor industry.
An InvestingPro Tip highlights that ASML "Has maintained dividend payments for 18 consecutive years," showcasing the company's commitment to shareholder returns even in volatile market conditions. This consistency aligns with JPMorgan's positive long-term outlook on the stock.
For investors seeking a deeper understanding of ASML's potential, InvestingPro offers 15 additional tips, providing a comprehensive view of the company's market position and financial health.
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