GT Advanced Technologies (GTAT) has been a red-hot performer in 2014. The stock has shot through the roof as the company's relationship with Apple (NASDAQ:AAPL) has gained attention. However, what makes GT Advanced better than other Apple suppliers who gained recognition when smartphone growth was at its peak and then faded away with time? We'll try and find that out, but before doing so, let's take a look at GT's recent results.
Reviewing the results
GT Advanced released results for its fourth quarter on Feb. 24. The company performed exceedingly well and shares gained 11% after the company crushed estimates. Its bottom line topped analysts' estimates by $0.10 per share, while a strong guidance for the current fiscal year sets the tone for yet another year of strong performance.
Management forecasts total revenue in the range of $600 million-$800 million for the year, better than Wall Street's view of $691.8 million. GT also believes that its revenue in 2015 will exceed $1 billion. Also, GT Advanced Technologies expects 2014 non-GAAP EPS in the range of $0.02 To $0.18, well ahead of the $0.07 consensus estimate at the mid-point. So, it looks like the company is quite upbeat about its long-term prospects and could be a strong performer in the long run.
GT Advanced Technologies stock looks like an attractive investment due to several reasons. First, the anticipated growth trajectory of its business is on the higher side because of its strong end-market prospects. Next, its HICz and PV technologies are seeing strong momentum, while Advanced Sapphire Furnace (ASF) customers, such as Apple, are planning expansion projects. Finally, the potential for its new polysilicon technology business is growing.
Apple will be utilizing GT Advanced Technologies' proprietary knowhow in sapphire. The two companies entered into a $578 million agreement last year. The deal is beneficial for both parties as it would enable Apple to lock in supply of sapphire, which it uses for its camera lenses and the protective disk that functions as the Touch ID home button in the iPhone 5S. Moreover, the sapphire can be used to make an almost un-scratchable alternative to traditional glass, apart from being thinner and lighter.
It has been rumored that Apple could use a sapphire display in the iPhone 6, which would place GT in a terrific position to benefit from the smartphone maker. However, there are a few concerns regarding the deal as Bernstein analysts Toni Sacconaghi and Alberto Moel would have us believe.
According to Fortune's Philip Elmer-DeWitt -
"Their reports represent the deepest dive I've seen yet into sapphire, its unique properties (Moel calls it a "wonder material"), its industrial uses, and what promise it might hold for Apple.
The two analysts don't have a definitive answer for that last part, except to demolish the theory that sapphire crystal will replace Corning's Gorilla Glass screen on the iPhone anytime soon, except perhaps as a laminate. (Why would Apple, which already owns the high-end smartphone market, replace a $3 screen with a $15 crystal that would probably shatter even more easily?)
(This) makes their analysis of the deal even more interesting. Basically, Apple has paid $113 million for an empty factory and loaned GT $578 million to purchase, install and operate the world's largest sapphire crystal-growing plant. GT gets a huge bump in its income and a lot of press and prestige, but it's assuming most of the risk. Apple is paying for the capacity, but it hasn't promised to buy all -- or even any -- of the sapphire GT makes."
Thus, there is a certain element of risk here for GT, but this is a risk that investors should be willing to take since the company's business is expected to flourish going forward.
GT's aim is to position itself not only as an exceptional sapphire supplier to Apple, but also as an unparalleled world class supplier of sapphire material and equipment for a variety of other customers.
GT's entry into the sapphire materials business may enable it to expand into other material segments. In addition, GT's diversification and investments made over the last several years in LED, power electronics, advanced solar, and industrial markets are expected to fructify over the next 18 months.
GT's commercialization plans for its Hyperion technology, silicon carbide HVPE, PVB, HiCz, and new polysilicon products remain on track. These new product launches are expected to reap results with orders expected in the latter part of 2014, with meaningful revenue recognition beginning in early 2015.
GT is targeting HVPE and PVD equipment offerings as well, apart from providing sapphire growth solutions for the LED sector. ASF customers are running at high utilization rates and expecting increased prices as demand increases for traditional LED applications. This should lead to higher revenue growth for GT in the future.
Demand from new applications outside of the LED sector are also adding volume and impacting supply-demand dynamics in the industry in a positive way. Tier 1 solar companies are posting positive margins and there is potential for fresh capital investment. Also, end market demand has also picked up due to a drop in prices. Demand is forecasted to grow to 49GW in 2014 from 36GW in 2013. With these amazing projections and the positive financial performance of some of the key players in the solar industry, the photovoltaic sector is showing signs of improvement, and this is a tailwind for GT going forward.
It is expected that 2014 will be a transformational year for GT; a year in which its sapphire materials business will boom while the prospects of the solar market should add further tailwinds to its top line. More importantly, the stock still looks cheap at a forward P/E ratio of under 20. So, GT Advanced Technologies is not just an Apple play at a cheap valuation, but it is also a solar play. Hence, investors shouldn't miss this growth stock as it is set to scale new heights in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.