Credit Suisse Downgrades ASML Holding, Has Subdued 2014 View

In a report published Tuesday, Credit Suisse analyst John Pitzer downgraded ASML Holding ASML to Neutral from Outperform, dropping its price target to $68.00 from $75.00. According to the report, analysts are not changing estimates, but lowering price target to reflect increased EUV uncertainty. “The stock appreciated 42% last year and 120% over the last two, versus S&P at 29.2% and 46.5% respectively,” the report noted. “While ASML continues to be well positioned and well managed, the stock is trading at ~21x FTM EPS versus peer group average of ~14.5x. In addition: (1) we enter 2014 with a more subdued view on the sector as current bottom-up estimates already embedded 19.1% y/y Shipment growth, achievable but with little upside, (2) lithography capital intensity which increased 70% from 28nm to 20nm is likely to only increase by 10% from 20nm to 10 nm, (3) 30% of WFE growth in 2014 is related to 3D NAND which is not Litho intensive and (4) evidence continues to mount that volume EUV implementation has been delayed until 7nm at foundry (2019) and potential 5nm at INTC (2019). Our peak earnings analysis suggests that with EUV ASML could generate EPS of E8.00-$9.00, without E5.00-E6.00, implying clarity around EUV is needed (albeit unlikely this year) for significant stock appreciation. We expect near term fundamentals are on track for a 1H14 that is approximately flat with 2H13 and expect DecQ revenues, bookings and EPS of E1.80bn (up 36.5% q/q), E1.27bn (down 10.4% q/q) and E0.97 respectively, essentially in-line with Consensus when they report on Jan 22. We are not changing our estimates, but we are lowering our PT to E68 (from E75) to reflect increased EUV uncertainty.” ASML closed Monday at $90.36.