AMKR Stock Study (9-19-23)

Posted by Mark on December 12, 2023 at 06:42 | Last modified: September 19, 2023 14:36

I recently did a stock study on Amkor Technology, Inc. (AMKR) with a closing price of $22.84.

M* writes:

     > Amkor Technology Inc is a provider of outsourced semiconductor
     > packaging and test services to integrated device manufacturers,
     > fabless semiconductor companies, and contract foundries. The
     > firm’s products are organized into two streams: advanced
     > products, including flip chip, wafer-level processing and
     > testing services; and mainstream products, including wirebond
     > packaging and testing. Roughly a third of the firm’s revenue
     > is generated in the United States, with the rest coming from
     > China, Ireland, Japan, Malaysia, Taiwan, Singapore, and
     > countries across the world.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.9% and 23.3%, respectively. Visual inspection is mediocre. Lines are generally up with pullbacks and narrowing. Sales and EPS decline in ’15 and ’19 with EPS also declining in ’18. The semiconductor industry is known to be highly cyclical. If by definition that means we never get a beautiful “up, straight, and parallel” graph, then I doubt that means we should altogether avoid investment. Perhaps it’s a matter of personal preference.

Over the past decade, PTPM lags peer and industry averages despite trending higher from 4.2% (’13) to 12.1 (’22) with a last-5-year mean of 7.9%. ROE lags the industry while tracking even with peers by increasing from 11.8% (’13) to 21.9% (’22) with a last-5-year mean of 14.9%. Debt-to-Capital is higher than peer and industry averages despite trending down from 63.4% (’13) to 28.1% (’22) with a last-5-year mean of 36.4%. The trifecta goes against this company for now.

Interest Coverage is 11.8 and Quick Ratio is 1.5. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.0% YOY contraction and flat for ’23 and ’22-’24, respectively (based on 2 analysts).
• YF projects YOY 6.9% contraction and 9.9% growth for ’23 and ’24, respectively (1 analyst).
• Value Line projects 3.9% annualized growth from ’22-’27.
• CFRA projects 7.2% YOY contraction and 0.8% growth per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 0.5% annualized contraction.

I am forecasting below the long-term estimate at 2.0% per year.

With regard to EPS growth:

• CNN Business projects contraction of 46.9% YOY and 14.6% per year for ’23 and ’22-’24, respectively (based on 2 analysts), along with 5-year annualized growth of 15.2%.
• MarketWatch projects annualized contraction of 9.9% and 11.2% for ’22-’24 and ’22-’25, respectively (3 analysts).
• Nasdaq.com projects 59.4% YOY growth for ’24 (1).
• YF projects YOY 48.6% contraction and 59.4% growth for ’23 and ’24, respectively (1), along with 5-year annualized contraction of 10.9%.
• Zacks projects YOY 48.6% contraction and 59.4% growth for ’23 and ’24, respectively (1).
• Value Line projects 5.2% annualized growth from ’22-’27.
• CFRA projects contraction of 49.5% YOY and 10.5% per year for ’23 and ’22-’24.

Number of analysts behind these estimates is very few. Matching ’23 and ’24 numbers for YF and Zacks raises the specter of data duplication, but thankfully long-term estimates vary. Given only 3 of those and projections of near-term contraction, I am forecasting flat growth (below the 3.2% mean) and using ’22 EPS of $3.11/share as high EPS. For low EPS, I will use ’23 Q2 EPS [arbitrary] of $2.35/share (annualized).

My Forecast High P/E is 12.0. Over the past decade, high P/E has ranged from 9.4 in ’22 to 42.2 (upside outlier in ’15) with a last-5-year mean of 16.9. The last-5-year-mean average P/E is 12.2. I am forecasting below the latter.

My Forecast Low P/E is 7.0. Over the past decade, low P/E has ranged from 3.9 in ’20 to 16.7 in ’15 (upside outlier) with a last-5-year mean of 7.5. The last-10-year median is 7.4. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $16.40 is default based on $2.35/share initial value. This is 28.2% less than the previous closing price and 1.9% greater than the 52-week low.

Since a dividend was initiated in 2020, Payout Ratio has been 2.9%, 6.7%, and 7.2%. I am forecasting conservatively near the bottom of the range at 3.0%.

These inputs land AMKR in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.6%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 21 studies over the past 90 days (my study and 9 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.5%, 7.3%, 13.4, 7.6, and 4.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 14.0, which is higher than MS (10.5) and mine (9.5).

MS high/low EPS is $3.57/$2.28 (per share) versus my $3.11/$2.35. Value Line projects $4.00/share [for high EPS], which is greater than both.

MS LSPF of $15.00 implies a Forecast Low P/E of 6.6 (vs. the above-stated 7.6). This is 13.4% less than the default value of $2.28 * 7.6 = $17.33, which represents more conservative zoning. MS LSPF is also 8.5% less than mine.

While the MS sample size is too small for a valid comparison, I consider MOS to be at least moderate in this study because all inputs are conservative [i.e. at the bottom (or below) respective ranges, below the mean, etc.]. Giving me pause is my TAR (over 15.0% preferred) being only 3.0% less [I often see this difference larger] than MS 13.6%. Also giving me pause is my EPS forecast far above the bottom of the analyst estimates’ range (-10.9%), but if any growth occurs at all then my 3.2% cushion is more than sufficient.

I track a few different valuation metrics. PEG is not available due to my 0% growth rate [indeterminate result] and Zacks’ absence of a long-term estimate. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 6.5 * [$7.00 – ($0.44 + $1.60)] = $32.24, which implies a 29.2% discount.

AMKR is a BUY under $21/share. With a forecast high price of $37.30, I need a stock price closer to $18.50 in order to meet my TAR criterion. In this instance, I am tempted to stick with that.

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