Taiwan Semiconductor Manufacturing Company Ltd. (TSM) Attracting Investor Attention: Here’s What You Should Know

TSMC (TSM) has caught the attention of many investors recently, becoming one of the most searched stocks. This article provides insights into the key factors that could influence TSMC's stock performance in the near future.

In the past month, TSMC's shares have shown a modest return of +0.9%. In comparison, the S&P 500 index has increased by +2.9%. Within the same timeframe, the Zacks Semiconductor - Circuit Foundry industry, which includes TSMC, has risen by 5.1%. The pressing question now is: What direction is the stock likely to take?

While news or rumors about a company can provoke immediate price changes, it is essential to recognize that fundamental factors ultimately govern the long-term buy-and-hold decision.

Earnings Estimate Revisions

At Zacks, we believe that tracking changes in earnings projections is vital. The fair value of a stock is based on the present value of expected future earnings. Our analysis focuses on how sell-side analysts adjust their earnings estimates based on the latest business trends.

When earnings estimates increase, the potential fair value of the stock rises as well. If a stock's fair value exceeds its current market price, investors typically view it as a buying opportunity, leading to price increases. Studies have shown a strong correlation between earnings estimate revisions and short-term stock prices.

For the upcoming quarter, TSMC is projected to report earnings of $2.14 per share, marking an impressive +48.6% change compared to the previous year. Notably, the Zacks Consensus Estimate has seen a growth of +6.2% in the last month.

Looking ahead to the current fiscal year, the consensus estimate stands at $6.95, indicating a +34.2% increase from last year's performance, with a recent change of +3% in projections.

For the next fiscal year, analysts anticipate earnings of $8.86 per share, reflecting a +27.5% shift from what TSMC is expected to report this year. Here too, the estimate has risen by +1.4% in the last month.

Our proprietary Zacks Rank, which utilizes earnings estimate revisions among other factors, suggests a favorable outlook for TSMC, currently rated at #2 (Buy).

Projected Revenue Growth

While earnings growth serves as a key indicator of financial health, consistent revenue growth is essential for long-term profitability. Without increasing revenues, sustained earnings growth is nearly impossible.

For TSMC, the consensus sales estimate for the current quarter is $26.46 billion, signaling a +34.9% increase year-over-year. The projected revenue for the current and next fiscal years is expected to rise to $88.39 billion and $110.43 billion, indicating growth of +27.6% and +24.9%, respectively.

Last Reported Results and Surprise History

In the latest quarter, TSMC reported revenues of $23.5 billion, showcasing a +36% change from the prior year. The earnings per share (EPS) for that period was $1.94, up from $1.29 the year before.

When compared to a consensus estimate of $22.72 billion, the reported revenues exceeded expectations by +3.47%, while the EPS surpassed estimates by +11.49%.

TSMC has consistently exceeded consensus EPS estimates in the last four quarters and has also surpassed revenue projections each time during this period.

Valuation

Before making any investment decisions, it is critical to assess a stock's valuation. Analyzing whether a company's stock price accurately reflects its intrinsic value and growth potential is crucial for future price performance.

Comparing TSMC's current valuation multiples—like price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF)—against its historical values can determine if it is overvalued, undervalued, or fairly valued. Additionally, comparing these metrics relative to its industry peers provides further insight into TSMC's stock price behavior.

TSMC has received a Zacks Value Style Score of B, indicating that it is currently trading at a discount compared to its peers.

Bottom Line

Given the information discussed here, it may be worth considering the recent buzz surrounding TSMC. With a Zacks Rank of #2, it suggests the possibility of outperforming the broader market soon.

TSMC, Stocks, Earnings