Emerging AI And STT-MRAM Innovations Could Spark Revenue Growth Despite Market Volatility

Key Takeaways

• STT-MRAM technology and strategic partnerships could drive growth in data centers, automotive, and defense sectors, boosting revenue and margins.
  
• Collaboration in AI and automotive markets reflects potential revenue increase, supported by design wins and aligning with industry standards.
  
• Volatile revenue and decreased margins due to demand timing and fixed costs pose risks, with uncertain new product timelines affecting future earnings stability.

Catalysts

Engages in the manufacture and sale of magnetoresistive random access memory (MRAM) products in the United States, Japan, Hong Kong, Germany, Singapore, China, Canada, and internationally.

• Everspin Technologies' product line expansion with STT-MRAM technology targeting data centers, automotive, and defense sectors could drive future revenue growth, given rising adoption and anticipated design wins.
  
• Development of high-performance persistent memory solutions and partnerships, such as those with Frontgrade and the Department of Defense, could strengthen Everspin's revenue streams and margins through increased licensing and royalty income.
  
• The strategic DoD contract and related RAD-Hard programs reflect long-term revenue potential and could enhance earnings by providing stable below-the-line income over the next 2.5 years.
  
• Everspin's collaboration with Purdue University and investment in AI hardware projects suggest potential future growth in emerging AI markets, which may positively impact revenue and margins.
  
• Anticipated growth in automotive applications, particularly with design wins like Lucid Motors' Gravity SUV, suggests potential revenue increase and margin enhancements as STT-MRAM aligns with automotive industry standards.

Everspin Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Everspin Technologies's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 21.7% in 3 years time.
• Analysts expect earnings to reach $14.1 million (and earnings per share of $0.6) by about November 2027, up from $1.5 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 18.5x on those 2027 earnings, down from 83.1x today. This future PE is lower than the current PE for the US Semiconductor industry at 29.5x.
• Analysts expect the number of shares outstanding to grow by 2.36% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Everspin Technologies Future Earnings Per Share Growth

Risks

• The year-over-year decrease in product sales and licensing revenue, specifically a decline in product sales due to the timing of customer demand, suggests potential volatility in revenue streams. This unpredictability could negatively impact consistent growth in earnings.
  
• The GAAP gross margin decreased significantly from 60.2% in Q3 '23 to 49.2% in Q3 '24, partly due to absorbing fixed costs against lower Toggle product demand. This margin compression poses a risk to net margins.
  
• The recognition of revenue from some projects as other income, rather than against operating revenues, could indicate that a portion of current earnings is non-recurring and underscores potential volatility in future earnings consistency.
  
• Currency dynamics and economic conditions in regions such as Japan and Germany are cited as challenges, potentially affecting revenue stability in these markets.
  
• The relatively long development and qualification cycles for new products, like PERSYST STT-MRAM, suggest slow and uncertain timelines for converting new design wins into significant revenue growth, potentially impacting future earnings expectations.

Valuation

• The analysts have a consensus price target of $9.0 for Everspin 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 $10.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $64.9 million, earnings will come to $14.1 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $5.84, the analyst's price target of $9.0 is 35.1% higher.
  
• 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.