Tower Semiconductor(NASDAQ: TSEM) is making big gains in this week's trading. The Israel-based chip company's share price was up 15.2% from last week's market close as of 3:15 p.m. ET Friday, according to data from S&P Global Market Intelligence.
Tower reported its fourth-quarter results before the market opened on Feb. 14. The company posted earnings per share of $0.55 on sales of $351.71 million. Even though sales were down due to weaker demand in the automotive sector, this performance came in ahead of the average analyst estimate's call for per-share earnings of $0.52 on sales of $350 million.
Cyclical pressures weren't as bad as anticipated
Despite coming in better than Wall Street anticipated, Tower Semiconductor's revenue declined roughly 12.8% year over year in the fourth quarter. Gross profit for the quarter came in at $84 million, down from $87 million in the prior-year period. For additional comparison, the company posted a gross profit of $125 million in Q4 2022.
Soft demand in some key segments pushed sales and gross profit lower in the period, but it looks like improvement is in sight. The company's forward guidance suggests the business may be emerging from a cyclical downturn.
Tower's guidance suggests the stock could have room to run
For the first quarter, Tower is guiding for sales of roughly $325 million -- with the potential for sales to come in somewhere between 5% lower and 5% above that target mark. Looking ahead, the chip company said that it expected substantial sequential quarterly sales growth to continue throughout 2024.
TSEM PS Ratio (Forward) data by YCharts
Tower Semi is now trading at roughly 17.8 times this year's expected earnings and 2.7 times expected sales. While the business has been subject to cyclical shifts in some of its key industry segments, it looks like performance is on track to improve in the near term.
Tower had previously been on track to be acquired by Intel, but the deal wound up being scuttled after the two companies were unable to secure timely approval from Chinese regulators. With the chip specialist's business seemingly poised to gain momentum and its stock still trading significantly below where it was priced when the potential acquisition was abandoned, investors may want to take a closer look.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tower Semiconductor. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
