GlobalFoundries, Ford’s Semiconductor Partner, Is Wall Street’s New Darling
A silicon wafer at a GlobalFoundries plant in Dresden, Germany.
A bevy of analysts launched coverage of
the semiconductor fabricator working with
on Monday. Almost all recommend buying the stock, and investors are taking the advice to heart.
GlobalFoundries (ticker: GFS) stock was up about 4.7% in premarket trading, while futures on the
Dow Jones Industrial Average
were both about 0.4%. higher.
Ten analysts launched coverage on the stock, according to Bloomberg. The flurry of new ratings follows the company’s initial public offering on Oct. 27, when GlobalFoundries sold 55 million shares at $47 each. Analysts working for brokers involved in an IPO don’t launch coverage for about 25 days following the stock offering.
Now, 11 analysts cover the stock. Nine, or 82%, rate the stock at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. One analyst rates shares at Hold, and the other considers them a Sell.
The average analyst price target is $78 a share, about 25% above Friday’s closing level of $62.11.
Rising sales and clarity about the prospects for more are two reasons the Street likes the new chip stock. “We have entered a period of accelerated growth for semis,” Wedbush analyst Matt Bryson, who rates the stock at Buy, wrote in a Monday report. 5G devices, smarter cars, cloud data centers and other high-tech applications all need a lot of semiconductors.
How GlobalFoundries will benefit from that increasing demand is relatively easy to project because the company has long-term contracts with its customers.
Sales “visibility” was also cited by J.P. Morgan semiconductor analyst Harlan Sur, who rates the shares at Buy, saying GlobalFoundries is a leader in specialty chip manufacturing. His price target is a little higher than average at $80 a share. Sur projects sales will grow at about 14% a year for the coming two years.
GlobalFoundries doesn’t design chips like, say,
(NVDA) does. It is a manufacturer that semiconductor companies use for outsourcing production. The former chip-manufacturing unit of
Advanced Micro Devices
(AMD), it is the third-largest fabricator in the world.
Raymond James analyst Chris Caso’s price target is $80, like Sur’s. And he, too, rates the stock at Buy. Like Sur and Bryson, Caso likes the fact that GlobalFoundries has long-term contracts with customers that will ensure sales grow. Also on the positive side, he said in his Monday report, GlobalFoundries has “a geographic footprint that provides a competitive alternative for customers seeking diversity of wafer supply outside of Asia.”
That footprint appears to have weighed heavily in Ford’s (F) decision to partner with GlobalFoundries recently. That pair made a splash this past week when they announced a deal to work together to produce some of the chips the auto maker needs in America.
GlobalFoundries shares rose 11% last week as investors considered the effects of the Ford deal. Wall Street’s bullish take is giving them more fuel.
Write to Al Root at email@example.com