UBS Upgrades ams OSRAM; Shares Soar

Shares of ams OSRAM experienced a significant increase on Tuesday following an upgrade from UBS, which revised its rating of the company to “buy.”

At 5:35 am (0935 GMT), ams OSRAM’s stock was trading 13.9% higher at CHF 1.06. The brokerage’s updated outlook indicated a more favorable trajectory for the semiconductor manufacturer, driven by improvements in financial stability and a positive industry forecast.

UBS highlighted crucial enhancements in the company’s balance sheet and the potential for notable growth in the near term. Since acquiring OSRAM in 2020, ams OSRAM has been undergoing restructuring amidst a challenging industry environment. However, UBS believes that the company has turned a corner.

The brokerage noted that immediate concerns regarding liquidity and leverage have lessened due to efforts focused on reducing debt levels. Analysts forecast a decline in net debt to EBITDA ratios from 3.4x in Q2 2024 to 2.8x by Q2 2025. Additionally, the potential sale of its microLED facility in Kulim, Malaysia, through a sale-and-leaseback agreement could further lower leverage ratios to around 2.2x, a factor UBS believes the market has yet to fully consider.

UBS anticipates a financial recovery for ams OSRAM, projecting a return to revenue growth in 2025 after 11 consecutive quarters of decline. Following a period of operational restructuring and asset sales, analysts expect the company’s revenue to increase by 5% year-on-year in 2025, signaling a rebound from its recent downward trend.

In conjunction with revenue growth, UBS predicts further improvements in profitability, with the adjusted EBIT margin expected to rise from 7% in the second quarter of 2024 to 11% by mid-2025. This optimistic forecast has prompted UBS to raise its price target for ams OSRAM from CHF 1.20 to CHF 1.60, suggesting a 70% upside from the stock’s closing price of CHF 0.93 as of September 23, 2024.

Analysts indicate that, under favorable circumstances where the company fully achieves its strategic goals, the share price could potentially triple. This positive outlook is based on UBS’s view that current market sentiment is overly negative, particularly concerning ams OSRAM’s ability to reduce debt and foster growth. The recovery of key sectors like automotive LED and consumer electronics is expected to further enhance the company’s performance.

As liquidity worries diminish and tangible progress in revenue and margin recovery is made, ams OSRAM seems well-positioned for a significant turnaround.