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Is Apple Piggybacking GT Advanced Technologies’ Valuation?

Is Apple Piggybacking GT Advanced Technologies’ Valuation?
By: Larry Darrell
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GT Advanced Technologies (GTAT) – which makes crystal-growing materials and equipment for the global electronics, solar and LED industries – has come into the limelight after Apple Inc. (AAPL) announced that it would be using GT’s Sapphire glass in its products from now on.

Yesterday, GT’s stock price rose nearly 6.5% after research firm Dougherty & Company said it had initiated coverage of the stock with a target price of $29. GT’s stock currently costs $14.28 apiece, which means Dougherty & Co.’s valuation signals an upside of more than 100%. Dougherty & Co. analyst Pierre Maccagno said he expects GT’s revenues to compound at an annual rate of 93% from 2013 through 2016 as its Sapphire glass makes inroads in the consumer electronics industry and replaces Corning Inc.’s (GLW) Gorilla Glass. The firm also said GT’s cost-effective business model and internal efficiencies support an optimistic outlook for the company this year.

Goldman Sachs had initiated coverage of GT Technologies earlier in March, giving it a Buy rating with a target price of $20. The reasons behind its positive rating were GT’s strong focus on Sapphire glass, and the fact that Apple is the company’s major customer. Goldman Sachs also said that GT may face headwinds in the first half of the year as it invests in production facilities, but suggested that the second half will be more profitable after the new iPhone is launched.

Credit Suisse, which previously had a Neutral rating for GT, also upgraded its stance to Outperform in March. Analysts at Credit Suisse said they believe the outlook for polysilicon (which GT makes) and Sapphire glass is strong, and were also bullish due to the fact that Apple is GT’s largest customer.

Currently, of the 12 analysts who cover the stock, eight recommend it as a Buy, 3 recommend it as a Hold, and only 1 recommends it as a Sell.

First-Quarter Earnings

Earlier this week, the company reported earnings for the first quarter its 2014 fiscal year (1QFY14). GT reported revenues of $22.5 million for the quarter, in-line with its own expectations, but markedly below the consensus estimate of $27 million.

The total worth of equipment orders for the period came to $29 million, an increase of 21% quarter-over-quarter (QoQ). Sapphire equipment orders increased from $3 million in the fourth quarter of 2013 to $14 million in 1QFY14. At the end of the quarter, GT had an equipment backlog worth $609 million, including $300 million worth of orders for Sapphire glass alone.

For the full year, the company reiterated its revenue guidance of $600-800 million, of which 80% will be generated from Sapphire glass. The mid-point of that range is above the consensus estimate of $693 million. The company also said it expects non-GAAP EPS of between 2-18 cents, which is in-line with consensus estimate of 10 cents.

The Apple Effect

Apple sold around 150 million iPhones in 2013, and has sold nearly 94 million iPhones so far this year. The next iteration of the iPhone is expected to be fitted with Sapphire glass, which is known for its hardness, toughness and scratch-resistance.

GT Advanced Technologies last year finalized a deal with Apple under which the former will use the latter's facility in Mesa, Arizona to supply Sapphire glass to the former. Apple agreed to pre-pay the former a sum of $578 million, of which GT has received $440 million so far. The deal is expected to yield big gains for the specialty glass maker.

Do you agree with what sell-side analysts have to say about GT Advanced Technologies? Leave your thoughts in the comments section below, and we will reply to you shortly!

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