Taiwan Semiconductor Manufacturing Company (TSMC) Draws Investor Interest: Key Insights

TSMC (TSM) has been attracting a lot of investor attention recently, indicating a potentially interesting opportunity for those considering its stock. It's important to explore some of the key elements that could affect the stock's performance going forward.

In the last month, TSMC's shares have shown a modest return of +0.9%. In comparison, the broader market, represented by the Zacks S&P 500 composite, has gained +2.9%. Additionally, within its sector, the Zacks Semiconductor - Circuit Foundry industry, which includes TSMC, has experienced a gain of 5.1%. As a result, a pressing question arises: What lies ahead for TSMC's stock?

Often, stock trends can be influenced by media reports or rumors regarding significant changes in a company’s business outlook. However, it is crucial to recognize that fundamental factors play a more substantial role in shaping long-term investment decisions.

Earnings Estimate Revisions

At the forefront of evaluating a company's potential is its earnings projections. At Zacks, the focus is on changes in earnings estimates made by analysts. This is because the fair value of a stock is largely based on the present value of its expected future earnings.

The evaluation process includes looking at how sell-side analysts adjust their earnings estimates in response to current business trends. A rise in earnings estimates typically suggests an increase in the stock's fair value, prompting investors to buy, which can subsequently drive the stock price up. Studies have shown a strong correlation between adjustments in earnings estimates and short-term stock price trends.

For TSMC, the consensus estimate for the current quarter indicates earnings of $2.14 per share, projecting an impressive change of +48.6% compared to the same quarter of the previous year. Moreover, the Zacks Consensus Estimate has increased by +6.2% over the last 30 days.

For the current fiscal year, the consensus estimate stands at $6.95, reflecting a remarkable change of +34.2% from the prior year. This estimate has also seen a +3% increase in the past month.

Looking ahead to the next fiscal year, the consensus estimate of $8.86 suggests a +27.5% change from estimated earnings for the previous year, with a recent increase of +1.4% in the last month.

TSMC boasts a strong auditing record, and our proprietary stock rating tool assigns a Zacks Rank of #2 (Buy) to this stock, indicating that it may perform well in the near term based on the changes in earnings estimates and other related factors.

Projected Revenue Growth

While earnings growth is essential, a company must also see revenue growth to sustain its earnings increase over time. Thus, understanding TSMC's potential revenue growth is crucial.

The consensus revenue estimate for TSMC is projected at $26.46 billion for the current quarter, marking a significant year-over-year increase of +34.9%. For the current and next fiscal years, estimates stand at $88.39 billion and $110.43 billion, translating to +27.6% and +24.9% growth respectively.

Last Reported Results and Surprise History

In its last report, TSMC recorded revenues of $23.5 billion, reflecting a +36% increase year-over-year. The earnings per share (EPS) for the same period were $1.94, significantly higher than $1.29 from a year earlier.

When compared to the Zacks Consensus Estimate of $22.72 billion for revenues, this result shows a positive surprise of +3.47%. Additionally, TSMC had an EPS surprise of +11.49%.

The company has consistently beaten consensus EPS estimates in the last four quarters, as well as surpassing consensus revenue estimates each time during this span.

Valuation

Understanding a stock's valuation is essential to making informed investment decisions. It is important to determine whether a stock's current price reflects its intrinsic value and growth potential.

Valuation multiples such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) can help assess whether a stock is correctly valued. Moreover, comparing a company's valuation metrics to its own historical values and to those of its peers provides insight into its market position.

The Zacks Value Style Score grades stocks on their valuation metrics from A to F. TSMC scores a B, suggesting that it is trading below its peers. This is indicative of a potentially favorable entry point for investors.

Bottom Line

The findings discussed, along with various insights available elsewhere, can assist in determining whether TSMC warrants further attention from investors. Its Zacks Rank #2 indicates a likelihood of outperforming the broader market in the near future.

TSMC, Earnings, Growth