While the semiconductor industry has been under pressure, its long-term growth prospects remain robust. Moreover, despite the challenges, sales in April 2023 totaled $40.0 billion, marking a 0.3% rise compared to March’s total of $39.8 billion.
So, quality semiconductor stocks Microchip Technology Incorporated (MCHP), Nikon Corporation (NINOY), and ChipMOS TECHNOLOGIES INC. (IMOS) could be wise investments.
The Biden-Harris Administration has announced the first CHIPS for America financing opportunity in order to revitalize the American semiconductor industry. The bipartisan CHIPS and Science Act provides $39 billion in semiconductor incentives.
Secretary of Commerce Gina M. Raimondo said, “The CHIPS and Science Act presents a historic opportunity to unleash the next generation of American innovation, protect our national security, and preserve our global economic competitiveness.”
Furthermore, the semiconductor market is expected to grow at 12.2% CAGR to $1.38 trillion by 2029. Investors’ interest in pharma stocks is evident from VanEck Vectors Semiconductor ETF’s (SMH) 29% returns over the past three months.
Let us look deeper into the fundamentals of the featured stocks.
Microchip Technology Incorporated (MCHP)
MCHP develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.
MCHP’s forward EV/EBIT multiple of 12.60 is 32% lower than the industry average of 18.53. Its forward non-GAAP P/E multiple of 13.53 is 40.1% lower than the industry average of 22.58.
MCHP’s trailing-12-month net income margin of 26.52% is significantly higher than the industry average of 1.71%. Its trailing-12-month ROCE of 36.07% is significantly higher than the industry average of 0.09%.
During the fiscal fourth quarter ended March 31, 2023, MCHP’s net sales increased 21.1% year-over-year to $2.23 billion. Also, its adjusted net income increased 11.9% year-over-year to $907.8 million, while its adjusted net EPS increased 21.5% year-over-year to $1.64.
The consensus revenue estimate of $8.91 billion for the year ending March 2024 represents a 5.6% increase year-over-year. Its EPS is expected to grow 5.3% year-over-year to $6.34 for the same period. MCHP’s shares have gained 42.9% over the past year to close the last trading session at $85.71.
MCHP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCHP has an A grade for Momentum and a B for Quality. It is ranked #10 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here for the additional POWR Ratings for Value, Growth, Stability, and Sentiment for MCHP.
Nikon Corporation (NINOY)
Headquartered in Tokyo, Japan, NINOY manufactures and sells optical instruments through the Imaging Product; Precision Equipment; Healthcare; Components; and Industrial Metrology, and Others segments. Its Precision Equipment Business segment offers FPD lithography systems and semiconductor lithography systems.
NINOY’s forward EV/EBITDA multiple of 6.43 is 33% lower than the industry average of 9.61. Its forward EV/Sales multiple of 0.77 is 34.1% lower than the industry average of 1.17.
NINOY’s trailing-12-month EBITDA margin of 14.38% is 32% higher than the industry average of 10.90%. Its trailing-12-month gross profit margin of 46.04% is 31% higher than the industry average of 35.15%.
In the fiscal year that ended March 31, 2023, NINOY’s revenue increased 16.4% year-over-year to ¥628.11 billion ($4.49 billion), while its gross profit increased 22.5% from the year-ago value to ¥289.17 billion ($2.07 billion).
The company’s profit for the year and EPS amounted to ¥43.28 billion ($309.79 million) and ¥124.77, representing increases of 2.4% and 7.9% from the prior-year period, respectively.
Street expects NINOY’s revenue to increase 47.7% year-over-year to $4.52 billion for the year ending March 2024. Over the past six months, the stock has gained 29.2% to close the last trading session at $11.68.
It’s no surprise that NINOY has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Stability, and Quality. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated NINOY for Growth, Momentum, and Sentiment. Get all NINOY ratings here.
ChipMOS TECHNOLOGIES INC. (IMOS)
Headquartered in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services worldwide. It operates in the following segments: Testing; Assembly; Testing and Assembly for LCD, OLED, and Other Display Panel Driver Semiconductors; Bumping; and Others.
IMOS’ forward EV/EBITDA multiple of 4.54 is 69.3% lower than the industry average of 14.77. Its forward Price/Sales multiple of 1.31 is 53.3% lower than the industry average of 2.81.
IMOS’ trailing-12-month net income margin of 11.30% is 559.7% higher than the industry average of 1.71%. Its trailing-12-month ROCE of 9.52% is significantly higher than the industry average of 0.09%.
IMOS’ total assets came in at NT$45.71 billion ($1.49 billion) for the period that ended March 31, 2023, compared to NT$44.94 billion ($1.46 billion) for the period that ended December 31, 2022. Its current assets came in at NT$19.60 billion ($637.80 million), compared to NT$18.35 billion ($ 597.15 million) for the same period.
Analysts expect IMOS’ revenue to increase 12.4% year-over-year to $808.88 million for the year ending December 2024. The stock has gained 24.2% over the past nine months to close the last trading session at $26.10.
IMOS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #9 in the same industry. It has an A grade for Sentiment and Momentum and a B for Value. To see additional IMOS’ ratings for Growth, Stability, and Quality, click here.
What To Do Next?
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MCHP shares were trading at $86.82 per share on Wednesday afternoon, up $1.11 (+1.30%). Year-to-date, MCHP has gained 24.72%, versus a 14.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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