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The Ratings Game: GlobalFoundries stock walks back some of big post-IPO gains as Wall Street applauds strong earnings

GlobalFoundries Inc. shares walked back some of their 50% in gains since their initial public offering a month ago as a few analysts raised price targets following a strong first earnings report and outlook given the ongoing global chip shortage.

Late Tuesday, GlobalFoundries

topped Wall Street expectations in its first earnings report as a public company and forecast low supply and high demand was still a factor amid a global chip shortage. Shares on Wednesday declined about 2% to around $68, but they’re still 45% above their IPO pricing of $47 from late October.

Of the 16 analysts who initiated coverage just recently, 13 have buy ratings, two have hold ratings, and one has a sell rating, according to FactSet. Of those, six analysts raised their price targets resulting in an average target price of $78.66, up from a previous $77.41, according to FactSet data.

Jefferies analyst Mark Lipacis, who has a buy rating and a $87 price target, underscored comments from GlobalFoundries Chief Executive Thomas Caulfield that while the chip industry has made some progress in closing the gap between supply and demand, that supply is “nowhere near” where it should be, blunting concerns that demand may soften.

Malta, N.Y.-based GlobalFoundries — known as a fabrication plant, or “fab,” in industry parlance — makes silicon wafers for the majority of chip makers who do not have their own fabs. Since the COVID-19 pandemic, customer waiting lists at third-party fabs like GlobalFoundries have been backlogged for several months owing to the global chip shortage.

Cowen analyst Krish Sankar, who has an outperform rating and a $80 price target, said that “fab tool and materials supply chain logistics appear on track to support 18%+ revenue growth next year,” and that the company “is well positioned in the pervasive semis foundry market to convert its $20B+backlog into strong revenue growth in the coming years while realizing material operating leverage.”

“Capex plans have been prescient and necessary to support LT demand,” Sankar said, noting that he still believes shares are undervalued.

GlobalFoundries CEO on IPO: ‘We have to accelerate our capacity’

Morgan Stanley analyst Joseph Moore, who has an equal weight rating and a $68 price target on the stock, remarked there were no big surprises in the earnings report.

“While we really like the company’s long term direction, the significant appreciation in the stock price since the IPO leaves us somewhat limited upside in the next 12 months unless either earnings can break out well above our estimates, or legislation adds more to strategic value that we have forecast,” Moore said.

Citi Research analyst Christopher Danley, who has a buy rating and a $75 price target, said the company keeps on bringing in more long-term supply agreements with upfront payments.

“There are no signs of slowdown as GFS received an additional $597 million in prepayments and additional long-term supply agreements,” Danley said.

For more: Five things to know about GlobalFoundries

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