BofA keeps this stock as top pick as pricing power seen driving earnings upside

Investing.com -- BofA Securities raised its price objective on this semiconductor company to €2,557 (US$2,915 for the ADR) from €2,452 and reiterated its “buy” rating and Top Pick.

The broker lifted its CY28E revenue and EPS estimates for ASML Holding by 8.7% and 13% to €76.5 billion and €85.2, citing higher like-for-like pricing and higher unit forecasts, partly offset by 2.5% higher input costs.

The broker says ASML delivers a 50% EPS CAGR over 2025-28E, the best of its global peers, owing to higher gross margins (6.5ppts higher versus 1.3ppts on average for peers).

It expects ASML system revenues to grow 40%, 31.9% and 36.2% year on year in CY26, CY27 and CY28, in line to slightly above wafer fabrication equipment (WFE) revenue growth of 33%, 34% and 30%.

BofA’s rule of thumb is that every 5% ASP increase lifts ASML’s EPS by 8%, assuming roughly 2.5% higher input costs.

If input costs do not rise, accretion would be about 10%. ASML guided for "higher value-based pricing" on its Q2 earnings call, likely affecting the P&L towards the end of 2027E. BofA’s estimates assume roughly 5% ASP increase and c2.5% input cost increase in CY28E, which it considers conservative.

The CY28E EUV forecast rises to 120 units from 110, and dry units to 210 from 190. The CY27E EUV forecast stays at 86 units.

BofA expects ASML to gradually increase production by reallocating factory floor to low-NA and benefiting from shorter lead times at suppliers such as Zeiss.

The price objective uses 25x CY28E EV/EBITDA, down from 27x to reflect the recent sector de-rating but within the historical range of 18x to 34x.

Uncertainty over ASML’s ability to ship DUV tools to China, the MATCH Act, is likely largely baked into the stock, with clarity expected after the US mid-terms and defence budget negotiations. China export restrictions remain a listed downside risk.

Original Article

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