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Cowen Starts GT Advanced Technologies (GTAT) at Outperform; Apple is N-T Catalyst, Solar/LED Dynamics Improving

August 13, 2014 9:38 AM EDT
Get Alerts GTAT Hot Sheet
Price: $40.00 --0%

Rating Summary:
    4 Buy, 7 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 5 | Down: 10 | New: 10
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Cowen and Company starts GT Advanced Technolgies (Nasdaq: GTAT) at Outperform with a target price of $19.

Analyst Jeffrey Osborne offered the following commentary:

Apple's New Products Launch Could Serve as Near Term Catalyst

GT's manufacturing relationship with Apple is about to break out of its shell per company guidance for a back end loaded 2H14, but also on new product launches. In September, our Apple analyst, Timothy Arcuri, expects a bevy of new products from Apple. He sees a role for sapphire in wearables and high end iPhones (both 4.7" and 5.2"), according to his conversations with industry contacts. We expect a ramp up in sapphire use relative to Corning's Gorilla Glass over the coming quarters, especially as the cost reductions play out through incorporating the Hyperion tool set, which is not part of the current production process.

Solar Capex Cycle Poised for 2H14 Through 2015

We see a significant buying cycle for solar capital equipment in the market during 2014 and 2015, following a painful 2012 during the “shakeout” period in the industry. 2014 has started out slowly mainly due to weaker than expected Chinese installations. While Chinese cell producers are running at near full capacity, most of their production is going toward Japan, United States, Europe and South America. We see global demand at 45.5 GW in 2014, increasing to 60.2 GW in 2016, acting as a driver of a capital spending cycle relative to effective polysilicon and wafer equipment capacity in the 50-60 GW range. While many in the supply chain are focusing more on project development instead of manufacturing, we expect a handful to add more capacity given likely demand increases and more attractive return on investment from the lower cost of production of new tool sets (DSS, Polysilicon, HiCZ, and Merlin) from GT and others in the industry.

Valuation Attractive on 2016 Metrics - More Normalized Year

With a steep earnings ramp needed in several businesses to reach 2015/2016 targets, we see 2016 as an appropriate valuation methodology. Our $19 price target is based off of 12.5x our $1.51 2016 EPS estimate. We see late 2015/early 2016 as being the end of the transitional period for GTAT as Apple revenue accelerates and solar polysilicon / ingot revenue normalizes and revenue recognition on material Hyperion revenue is achieved. We note this range implies a ~19x multiple on our 2015 estimates, which is lofty, thus we expect the stock performance to be dependent on additional catalysts such as orders on the announced new products as well as on existing solutions.



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