GlobalFoundries Holds Steady Despite Market Challenges, Analysts Project Recovery in Second Half 2024

Needham analyst N. Quinn Bolton reiterated a Hold rating on GlobalFoundries Inc GFS.

GlobalFoundries reported an inline quarter and guide excluding customer LTA resolutions and CHIPS Act tax credits. 

The excess inventory across multiple end markets will last into FY24. Bolton pushed out his recovery to 2H24 vs. 2Q24 prior. 

Customer LTA adjustments and solid manufacturing execution aided gross margins. 

The sizeable operating expenditure swing in 4Q reflects a full year's of tax credits. 

Bolton modeled CY24 CapEx at $1 billion, -50% Y/Y and below the Street's prior $1.4 billion estimate as GFS turns its focus to FCF, where estimates came down substantially.

The analyst projected a Q4 revenue and EPS of $1.850 billion (prior $1.875 billion) and $0.59 (prior $0.51).

Raymond James analyst Melissa Fairbanks reiterated an Outperform rating and $75 price target on GlobalFoundries. 

While continued inventory corrections and broadly weak demand outside of Auto impact near-term sales volume and utilization rates, the analyst is encouraged by the company's ability to recoup costs associated with customer pushouts and cancellations – helping minimize headwinds. Net, while investment tax credits partially offset recent capex and R&D spending, the management maintains a disciplined approach to investments – domestic and outside the U.S. – supporting longer-term profitable growth.

Wedbush analyst Matt Bryson reiterated an Outperform and $70 price target.

GFS outperformed prior earnings guidance as continued focus on cost and benefits from prior LTSA agreements allowed the company to primarily maintain margins despite falling utilization rates resulting from poor demand and elevated customer inventories. 

While guidance was shy of prior Street expectations, the outlook was not as bad as feared. 

Net, Bryson's view remains essentially unchanged. While industry conditions are certainly weighing on GFS, the foundry is also navigating the downturn as well as might be expected and better than many of its peers.

Assuming the analyst's outlook is correct, he expects stable pricing and improved utilization rates should create a path for GF to achieve its targeted long-term model (highlighted by 40% gross margins), albeit modestly later than previously anticipated due to the slower ramp of revenues and a need to improve utilization rates.

The analyst projected a Q4 revenue and EPS of $1.850 billion (prior $1.964 billion) and $0.59 (prior $0.62).

Price Action: GFS shares traded lower by 2.23% at $53.06 on the last check Wednesday.