Samsung stock downgraded as memory ASP cuts weigh on earnings

On Wednesday, BofA Securities adjusted its stance on Samsung Electronics Co Ltd . (KS::KS) (OTC: SSNLF (OTC:)), downgrading the stock from Buy to Neutral and revising the price target downward to KRW80,000 from KRW100,000.

The revision comes amid projections of a gradual decline in operating profit (OP) through the second quarter of 2025, with expectations of lower earnings per share (EPS) due to anticipated drops in memory average selling prices (ASP).

The firm’s analysis suggests a deceleration in Samsung’s operating profit, anticipating it to reach only KRW9.9 trillion in the third quarter of 2024, which is a decrease from previous estimates and the consensus of KRW13 trillion. This is attributed to rising costs, including a special bonus exceeding KRW1.0 trillion.

The forecast for the fourth quarter of 2024 is KRW9.7 trillion, with the expectation of a downturn in memory ASP, contrasting with an upturn in the first half and third quarter of the year.

The first quarter of 2025 is predicted to see a further decline in operating profit to KRW8.8 trillion, followed by KRW8.5 trillion in the second quarter, with no anticipated recovery due to continued weakness in ASP. BofA Securities also anticipates an operating loss for Samsung’s foundry business in the second half of 2025, citing underutilized capacity and a lack of new orders for NVIDIA (NASDAQ:)’s graphics processing units (GPUs).

The firm’s revised earnings per share estimates show a significant 30-40% reduction for the second half of 2024 and for 2025. This is mainly due to 10-15% lower memory ASP assumptions. According to BofA Securities, these large EPS revisions are likely to prevent any significant rally in Samsung’s stock price.

The current consensus estimates for operating profit, which are around KRW13 trillion and KRW15 trillion for the third and fourth quarters of 2024, respectively, and KRW45 trillion and KRW67 trillion for 2024 and 2025, appear to be 30-40% higher than BofA Securities’ forecasts.

This discrepancy is attributed to the Street’s more optimistic assumptions regarding memory ASP and the performance of High Bandwidth (NASDAQ:) Memory (HBM), where competitor SK Hynix is expected to capture over 50% of the industry’s revenue and profit, leaving Samsung with a likely market share of 30-40%.

In other recent news, Samsung Electronics Co., Ltd. reported a 3% increase in overall revenue for the second quarter of 2024, reaching KRW 74.1 trillion. This rise was accompanied by a significant growth in operating profit to KRW 10.4 trillion, largely due to higher average selling prices and a strong demand for OLED products.

Despite a seasonal dip in smartphone sales, the company achieved record-high sales in the first half of the year, primarily driven by its semiconductor and display businesses.

UBS has maintained its Buy rating for Samsung, citing a favorable supply and demand situation in the memory sector. The firm’s analysis indicates potential stability in the memory market, with demand for server DDR5 and enterprise SSDs remaining robust.

Looking ahead, Samsung anticipates further stabilization of consumer prices and potential interest rate cuts, with limited impact on ICT devices. The company also expects increased demand for premium products and ecosystem products in the second half of the year. Furthermore, Samsung plans to continue investing in advanced packaging, capacity expansion, and technology development.

InvestingPro Insights

In light of BofA Securities’ recent downgrading of Samsung Electronics Co Ltd. (SSNLF), InvestingPro provides valuable data and tips that may offer a broader perspective on the company’s financial health and stock potential. According to real-time data from InvestingPro, Samsung’s market capitalization stands at a robust $327.81 billion. With a P/E ratio of 17.76 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 17.05, the company presents a potentially attractive valuation for investors considering long-term positions.

InvestingPro Tips highlight that Samsung holds more cash than debt on its balance sheet, suggesting financial stability, and net income is expected to grow this year, indicating potential for future profitability. Additionally, the company has maintained dividend payments for 32 consecutive years, which could be appealing to income-focused investors. It’s important to note that Samsung is trading near its 52-week low, which may signal a buying opportunity for investors who believe in the company’s fundamentals and long-term prospects.

For those interested in further analysis and tips, InvestingPro offers additional insights on Samsung Electronics, with a total of 11 tips available to help inform investment decisions. Interested readers can explore these tips on the InvestingPro platform for a more comprehensive understanding of the company’s position within the Technology Hardware, Storage & Peripherals industry.

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