On Tuesday, Deutsche Bank adjusted its price target for GlobalFoundries Inc. (NASDAQ: NASDAQ:GFS) to $60.00 from the previous $62.00 but maintained a Buy rating on the stock. The semiconductor company reported first-quarter revenues and gross margin that exceeded the high end of its guidance, with figures around $1.55 billion and 26.1% respectively.
The company's second-quarter outlook also surpassed expectations, anticipating revenues and gross margin of approximately $1.62 billion and 25%, both above Deutsche Bank's estimates of $1.55 billion and 24.5%.
The majority of GlobalFoundries' optimism is attributed to its Automotive and Smart Mobile Device sectors, which together account for roughly 60% of its revenues. Management highlighted growth in content and volume in the Automotive sector and a reduction in inventory drawdowns in Smart Mobile Devices as key growth drivers.
Despite the positive performance, the analyst pointed out that the benefits from Long-Term Agreement (LTA) resolution to gross margin, which added around 5 percentage points in the first quarter, are expected to decline cyclically in the future.
The company is perceived as stabilizing amid ongoing cyclical challenges, improving its revenue and gross margin outlook. GlobalFoundries is also seen as well positioned to benefit from the secular trend towards the on-shoring of production for specialized lagging edge processes.
Deutsche Bank's decision to lower the stock price target to $60 is based on the expectation of slower gross margin expansion, despite higher revenue projections and above-consensus earnings per share estimates.
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