Samsung Electronics published a solid set of Q3 2021 results last week as it continued to benefit from strong pricing and demand in its semiconductor business. Revenues rose by about 10% year-over-year to around 73.98 trillion won ($63 billion) and net profit jumped 31% to 12.29 trillion won (about $10 billion), amid strong demand and pricing trends in the memory market and the ongoing semiconductor shortage. However, Samsung stock continues to underperform, remaining down by about 4% over the last month and around 25% year-to-date. So what’s weighing Samsung stock down and is the stock a buy at current levels?
While Samsung’s memory business has been faring well, with sales rising by almost 46% year-over-year in Q3, driven by demand from the server market and stronger pricing trends, investors fear that the DRAM prices – which is the primary driver of Samsung’s memory profits – could be peaking. For example, the memory market tracker, TrendForce, indicated that the average contract price of 8-gigabit DDR4 PC DRAMs fell by almost 10% over the last month. Moreover, Samsung’s smartphone business is also seeing some headwinds amid the component shortage, while its appliance business – which has been a big growth driver in recent quarters, could see sales cool off.
However, we still think Samsung stock is worth considering. The stock trades at about $1,495 per share or just a little over 11x our projected 2021 earnings for the company. While this is partly due to the inherent cyclicality of the memory market, we think there are a couple of longer-term trends that could help Samsung. Firstly, semiconductor and memory intensity in computing and consumer electronics products is only likely to rise in the longer term, driven by the continued migration to cloud computing and 5G smartphones that will drive memory demand. Moreover, Samsung is seen as a leader in advanced process technologies in memory products and this could help its margins. The company has been expanding mass production of 14 nm DRAM and 176-layer V-NAND. Samsung’s next-gen foldable smartphones have also seen a strong response and it’s likely that they could help to drive growth in the coming years. We value Samsung stock at about $1700 per share, marking a 14% premium over the current market price. See our analysis on Samsung Valuation: Expensive or Cheap for more details.
[9/7/2021] Down 14% This Year, Is Samsung Stock A Buy?
Samsung Electronics’ stock (LSE: SMSN) has declined by almost 14% year-to-date and currently trades at levels of around $1,660 per share. There are likely a couple of factors driving the decline. Although Samsung has been a big beneficiary of the surging demand and stronger pricing for chips through Covid-19, with its stock gaining close to 50% over the last year, investors likely anticipate that the memory boom is peaking, as inventory levels improve and as demand driven by the work from home trend likely fades. The chip operations rank as Samsung’s most lucrative business accounting for over 50% of Samsung’s operating profit in Q2. Separately, Samsung’s smartphone business has also seen sluggish growth, as it is weighed down by the component supply shortage. That being said, we think Samsung stock remains undervalued at current levels.
We value the stock at about $1,810 per share, a premium of about 10% over the current market price. See our analysis on Samsung Valuation: Expensive or Cheap for more details. This translates into a relatively low forward earnings multiple of just about 14x, due to the inherent cyclicality of the memory market. However, we think there are a couple of trends that could help Samsung stock. While new devices and processor launches through the fall should help near-term demand, there are multiple longer-term trends such as the continued migration to cloud computing and 5G smartphones that will drive memory demand. Moreover, Samsung’s recent investments into new memory production processes are also likely to result in cost reductions, which would be positive for profitability. Additionally, Samsung’s foundry business – which essentially produces chips for fabless semiconductor companies – may also see a higher focus from investors, given the ongoing logic chip shortage. Samsung, which is the second-largest foundry player behind Taiwan’s TSMC, is aggressively expanding foundry capacity, particularly in the U.S. The company is also pushing toward introducing the next-generation 3-nm process technology, which increases performance and lowers power consumption for chips, from 2022 onward. As the company executes these plans, investors could re-rate the stock higher.
[7/30/2021] Samsung’s Q2 Results
We have raised our price estimate for Samsung Electronics’ stock (LSE: SMSN) from around $1,615 to $1,808, a 12% increase, considering the company’s strong Q2 2021 earnings and a strong outlook for the semiconductor business. See our analysis on Samsung Valuation : Expensive Or Cheap? for more details on the numbers driving our price estimate for the stock. Below is a quick overview of how the company fared over the last quarter and what the outlook could be like.
Over Q2 2021, Samsung’s revenues expanded 20% year-over-year to 63.67 trillion won (about $56 billion), with net profit rising 73% to 9.63 trillion won (around $8.4 billion). Growth was driven primarily by the memory business, which has seen sales expand through Covid-19, as the remote working trend has resulted in higher demand for computers and servers. Samsung’s appliances business also posted a 32% jump in sales, driven by stay-at-home trends through the pandemic, although its impact on overall profitability is limited, given its thin margins.
The outlook for Samsung’s semiconductor business – which accounted for over 55% of Samsung’s profits in Q2 – remains strong, led by the server and mobile market. New devices and processor launches, as well as the continued migration to cloud computing and 5G smartphones, are likely to be key drivers of demand. Inventory levels for memory have also declined substantially per Samsung, as customers have rushed to stock up on chips following the global semiconductor shortage. This should continue to bode well for pricing. Separately, Samsung’s recent investments in new production processes are also likely to result in cost reductions, which would be positive for profitability.
Our $1,808 price estimate for Samsung values the stock at about 14x our projected 2021 EPS for the company. This marks an upside of about 5% from the current market price, as we believe that increasing digitization of the economy through and post Covid-19 will portend well for Samsung’s semiconductor, display, and mobile devices businesses, helping it to drive profits in the long run. That said, Samsung’s valuation is still well below peers in the semiconductor space given its exposure to the significantly cyclical memory markets and also due to the fact that a bulk of its revenues still come from smartphones and appliances, which have much lower margins.
[3/2/2021] What’s Happening With Samsung Stock?
Samsung’s stock has rallied by about 18% over the last three months trading at about $1,860 per share. So what are some of the trends currently driving Samsung’s business and stock price? Firstly, pricing for DRAM is likely to continue to pick up over 2021, driven by stronger demand from 5G smartphones, cloud data centers, and personal computers. Supply is also likely to be limited, as Samsung and rival SK Hynix – two of the largest producers – have scaled back on DRAM capital expenditures. Moreover, unlike NAND memory, demand for DRAM chips is relatively inelastic, meaning that customers typically can’t scale back on orders as prices rise. This should bode well for Samsung, as DRAM is one of the biggest drivers of its earnings. For perspective, about 52% of Samsung’s operating profits over 2020 came from its semiconductor business and it’s safe to assume that a bulk of the semiconductor profits come from the DRAM business. That said, Samsung’s profits could face some pressure in the near-term due to weakness in the U.S. dollar, which remains down by about 7% over the last 12 months versus the Korean Won and also due to higher costs from some of the company’s new semiconductor fabs, which are just ramping up production. What Has Driven Samsung Stock’s 55% Gain Since 2017?
[1/5/2021] After A 50% Jump In 2020, Are Further Gains Ahead For Samsung Stock?
Samsung Electronics had a solid 2020, with its stock price rising by more than 50% over the year to levels of around $1850 per share. Although the company’s flagship smartphone business faced some headwinds, this was more than offset by higher demand for memory products from the PC and mobile device space and the growing “stay-at-home economy,” which boosted sales of the company’s typically slow-growing TVs and home appliances segment. Are further gains in the cards for Samsung? Let’s take a look at what’s driven the gains in Samsung’s stock price in recent years and what the outlook for the company’s key businesses could be like. See our dashboard analysis on What Has Driven Samsung Stock’s 52% Gain Since 2017? for a detailed overview of how Samsung’s Revenues, Margins, and multiple have changed in recent years.
What Has Driven Samsung’s Stock Price In Recent Years
Samsung’s Revenues declined from around $211.9 billion in 2017 to about $208 billion in 2019, as DRAM prices, which surged over 2017 amid a supply crunch, saw declines. However, Revenues improved over the last 12 months, driven by improving semiconductor and consumer electronics demand. Samsung’s Net Margins declined from 17.6% in 2017 to about 9.4% in 2019, as Revenues from the high-margin memory business moderated, although they improved slightly to about 10.6% over the last 12 months. Samsung’s EPS also declined from levels of about $131 in 2017 to $81 over the last 12 months. However, the markets have been valuing Samsung more richly, with its P/E multiple rising from about 9.1x in 2017 to about 22.5x currently (based on trailing 12-month Revenues). While this is partly due to low interest rates and a broader shift to equities, investors probably think that the increasing digitization of the economy through and post Covid-19 is likely to bode well for Samsung’s semiconductor, display, and mobile devices businesses, helping it to drive profits in the long-run.
DRAM And 5G Cycle Likely To Drive Earnings In 2021
There are multiple trends that are likely to help Samsung’s performance in the near to medium-term. Firstly, the DRAM market, which is one of the biggest drivers of Samsung’s profits, is likely to look up over 2021, driven by higher demand from the server market, as companies are expected to boost capital expenditures after scaling back in 2020 amid fears of a long Covid-19 recession. Supply growth for DRAM is also likely to be limited, as the industry starts transitioning to the next-gen DDR5 DRAMs, which are apparently more difficult to manufacture. Separately, the upgrade to 5G networks is also expected to increase semiconductor content in mobile devices, helping Samsung’s logic chip business. Samsung’s mobile handset business is also likely to benefit from the 5G trend, as the company begins to transition mass-market models to the next generation wireless technology. That being said, we are not sure that the demand increase over 2021 will translate into further gains for Samsung’s stock price, given that its valuation multiple has expanded considerably in recent months in anticipation of the gains.
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