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Taiwan Semiconductor TSM, one of the major chipmakers and the world’s largest integrated circuit foundry, is set to report its fiscal Q4 earnings on January 12. The report will offer a preview of how semiconductor companies are currently doing as we move further into 2023.
Semiconductor stocks, in general, have felt the brunt of the pain from higher inflation and Taiwan Semiconductor’s report will receive considerable attention with other chip giants like Nvidia NVDA and Broadcom AVGO not reporting until later in the quarter.
Q4 Earnings & Outlook
With Taiwan Semiconductor sporting a Zacks Rank #2 (Buy) at the moment it may be more plausible that an earnings beat is in store which could be a further catalyst for broader semiconductor stocks as well.
The Zacks Expected Surprise Prediction (ESP) has TSM beating expectations by 1.3% as earnings estimate revisions have continued to trend higher over the last week going into its Q4 report.
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Furthermore, the Zacks Consensus for TSM’s Q4 Earnings is $1.80 per share, which would be a 56% increase year over year. Sales for Q4 are expected to be up 29% at $20.29 billion. This is an indication that Taiwan Semiconductor is starting to adjust to tougher operating environments seen across the global economy.
Taiwan Semiconductor’s full-year earnings for its current fiscal 2022 are projected to climb 55% to $6.39 per share. Fiscal 2023 earnings are forecasted to decline -9% after a better-than-expected year. Earnings estimate revisions are up for FY22 and have started to trend higher again for FY23.
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On the top line, sales for fiscal 2022 are expected to climb 27% and rise another 7% in FY23 to $77.31 billion. Fiscal 2023 would be a very impressive 116% increase from pre-pandemic levels with 2019 sales at $35.77 billion.
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Performance & Momentum
Over the last year, TSM is still down -38% underperforming the Nasdaq’s -29% and the S&P 500’s -18%. In comparison, Nvidia’s -44% has underperformed TSM and broader indexes as well, while Broadcom’s -8% has outperformed. Taking the last five years into account, we can see from the nearby chart that TSM’s +98% has easily outperformed broader indexes but still trailed the performance of Broadcom and Nvidia.
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However, Taiwan Semiconductor stock has continued to see strong momentum of late, rallying nicely over the last two months. TSM stock has now climbed +34% from its November lows, outperforming Broadcom, Nvidia, and the broader indexes during this period.
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Valuation
Looking at Taiwan Semiconductor’s valuation may be key for some investors to buy into the possibility of more upside in TSM shares after such extensive rallies.
In this regard, shares of TSM still look attractive trading around $81 per share and at 14.1X forward earnings. This is 59% below its decade high of 34.4X and an 11% discount to the median of 15.9X. Even better, TSM stock trades 18% beneath the benchmark’s 17.5X forward earnings.
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Plus, when taking the growth rate into account with its price to earnings TSM’s PEG of 0.66 is nicely below the optimum level of 1. This is also beneath the benchmark’s PEG of 1.64 and the broader Computer and Technology sectors 1.69.
Bottom Line
Based on Taiwan Semiconductor’s (TSM) valuation and top line growth there could certainly be more upside in the stock. In addition to sporting a Zacks Rank #2 (Buy), TSM stock has an overall “A” VGM Style Scores grade with the average Zacks Price Target suggesting 33% upside from current levels.
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Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
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Broadcom Inc. (AVGO) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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