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Photronics: Extremely Undervalued, And A Cash Rich Photomask Leader
PLABPhotronics(PLAB) Seeking Alpha·2024-07-19 14:21

Core Viewpoint - Photronics, Inc. is positioned to benefit from the increasing demand for semiconductors driven by AI and IoT applications, with a projected fair price of approximately 54.85basedonDCFanalysis[1][22][26]BusinessGrowthandHeadcountGrowth−Photronicsistheworld′sleadingmanufacturerofphotomasks,withelevenmanufacturingfabsacrossmultipleregionsincludingTaiwan,China,Korea,theUnitedStates,andEurope[2]−Thecompanyreportedadiversecustomerbaseof696clientsin2023,indicatinggeographicandclientdiversification[2]−Headcountincreasedfrom1,500in2014to1,885in2023,suggestingacorrelationwithnetsalesgrowth[2]FinancialPerformanceandProjections−EPSestimatesfor2024and2025areprojectedat54.85 based on DCF analysis [1][22][26] Business Growth and Headcount Growth - Photronics is the world's leading manufacturer of photomasks, with eleven manufacturing fabs across multiple regions including Taiwan, China, Korea, the United States, and Europe [2] - The company reported a diverse customer base of 696 clients in 2023, indicating geographic and client diversification [2] - Headcount increased from 1,500 in 2014 to 1,885 in 2023, suggesting a correlation with net sales growth [2] Financial Performance and Projections - EPS estimates for 2024 and 2025 are projected at 2.10 and 2.20respectively,withyear−over−yeargrowthratesof2.942.20 respectively, with year-over-year growth rates of 2.94% and 4.76% [4] - The company has seen significant growth in net property, plant, and equipment (PP&E), increasing from 550 million in 2014 to 729millionin2023,indicatingreinvestmentincapacity[5][11]−Totalassetshavegrownfrom729 million in 2023, indicating reinvestment in capacity [5][11] - Total assets have grown from 1 billion in 2003 to 1.6billionin2023,reflectingoverallbusinessexpansion[5]CashandEquityPosition−Cashreservesincreasedfrom1.6 billion in 2023, reflecting overall business expansion [5] Cash and Equity Position - Cash reserves increased from 192 million in 2014 to approximately 493.9millionin2023,suggestingstrongliquidity[5][11]−Thetangiblebookvaluepershareisreportedat493.9 million in 2023, suggesting strong liquidity [5][11] - The tangible book value per share is reported at 16.75, indicating the company is undervalued at current market prices [5][12] Valuation Metrics - The company trades at approximately 4.4x forward EBITDA, significantly lower than the sector median of around 15x [15][16] - Comparatively, competitors trade at forward EBITDA multiples ranging from 9x to 23x, highlighting Photronics' undervaluation [14][15] Future Growth Expectations - Anticipated capital expenditures for FY24 are approximately 140million,aimedatenhancingICcapacityandefficiency[19][26]−TheAMOLEDmarketisprojectedtogrowfrom140 million, aimed at enhancing IC capacity and efficiency [19][26] - The AMOLED market is projected to grow from 16.59 billion to 78.83billionby2030,withaCAGRof21.5178.83 billion by 2030, with a CAGR of 21.51%, which could further drive demand for Photronics' products [18] Analyst Sentiment - The average target price from analysts is around 32 per share, indicating a potential upside of 21.49% from current levels [24] - The overall analyst rating for the company is a strong buy, reflecting positive sentiment towards its future performance [24]