Expansion Into Silicon Carbide May Strengthen Future Position, But Revenue May Decline Due To Export Restrictions

Key Takeaways

• Long-term growth driven by silicon carbide demand and efficiency in manufacturing processes is expected to boost revenue and maintain margins.
  
• Geographic and market expansions, alongside R&D investments, aim to increase market share and enhance future revenues and competitive positioning.
  
• Revenue and margin fluctuations may result from market slowdowns, export restrictions, and uncertainties in semiconductor industry investments, despite pioneering silicon carbide technology efforts.

Catalysts

Designs, manufactures, and services ion implantation and other processing equipment used in the fabrication of semiconductor chips in the United States, Europe, and the Asia Pacific.

• Axcelis is poised for long-term growth in the silicon carbide market, driven by increasing demand in power applications such as the transition of the EV industry to 800-volt architectures and rising energy needs in data centers. This is expected to boost revenue over time as adoption of silicon carbide expands.
  
• Continued investment in new technology roadmaps with customers, particularly in transitioning from 150mm to 200mm wafers, is expected to drive future growth and maintain or improve net margins by enhancing the efficiency of the manufacturing process.
  
• The expansion into the advanced logic market is a multiyear initiative that, although in its early stages, aims at increasing Axcelis’ share in this segment and potentially enhancing future revenues and market share in this high-value area.
  
• Geographic expansion into Japan, where Axcelis currently has low penetration, represents a significant opportunity to increase revenue by capturing a part of the substantial ion implantation market in the region.
  
• Axcelis continues to invest in R&D to maintain innovation, which is essential for penetrating new markets and retaining competitive advantages. This is likely to support sustained margin improvements and future earnings growth by ensuring product differentiation and customer satisfaction.

Axcelis Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axcelis Technologies's revenue will decrease by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.7% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $72.1 million (and earnings per share of $2.58) by about March 2028, down from $201.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.8x on those 2028 earnings, up from 9.0x today. This future PE is greater than the current PE for the US Semiconductor industry at 26.8x.
• Analysts expect the number of shares outstanding to decline by 1.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.62%, as per the Simply Wall St company report.

Axcelis Technologies Future Earnings Per Share Growth

Risks

• Concerns about a sequential decline in revenue from power applications, along with expectations of a year-over-year revenue decline in 2025, could negatively impact Axcelis’s overall revenue and earnings.
  
• The slowdown and digestion of capacity in the power and general mature markets, especially in China, pose a risk to revenue stability in the near term.
  
• While Axcelis is pioneering in silicon carbide technology, there is a risk connected to the slower-than-expected recovery in the industrial auto market, which could affect future revenues and margins.
  
• The semiconductor industry sees a digestion period that introduces uncertainty in system sales, particularly in certain advanced nodes and DRAM investments; this could lead to fluctuations in earnings and margins.
  
• Potential revenue impacts due to new export restrictions from the U.S. government have been estimated, creating a lower revenue outlook, although expected to be on the lower end of previous estimations. This could affect net margins and overall financial performance.

Valuation

• The analysts have a consensus price target of $79.5 for Axcelis Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $100.0, and the most bearish reporting a price target of just $68.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $803.7 million, earnings will come to $72.1 million, and it would be trading on a PE ratio of 43.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $56.15, the analyst price target of $79.5 is 29.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.