GT Advanced Technologies (GTAT) shares have risen in an outstanding fashion this year. The stock has gained a massive 110% in 2014 as it is widely believed that GT is going to supply sapphire displays to Apple (NASDAQ:AAPL). Moreover, Goldman Sachs (NYSE:GS) has also upgraded its price target on GT to $24, signifying almost 33% of upside from current levels.
Goldman's counting on an Apple boost
According to Goldman Sachs (via The Street) -
"We believe investor focus on GTAT's Apple opportunity - a key part of our thesis - is well deserved, but has created a dynamic in which the company's 'core' equipment segment is underappreciated. We continue to see a next-gen iPhone worth $15/share alone in a base-case with an upside case of over $25."
So, Goldman is betting big on GT's deal with Apple, which was signed last year for $578 million. As per the deal, Apple is supposed to build a facility to store GT's equipment, while GT will reimburse Apple over a period of five years. In addition, Apple has also got exclusivity from GT to obtain sapphire crystal displays from GT.
What's more, it looks like Apple is now looking to expand its Arizona sapphire plant to push up yields. As reported by AppleInsider (via MacRumors), "several companies in the area are currently bidding on a potential expansion, which would possibly allow GT Advanced to put out even greater quantities of sapphire for use in Apple's products. While it remains unclear just how Apple will use the sapphire, there have been several strong hints and equipment orders pointing towards sapphire displays for the upcoming iPhone 6."
In addition, Apple made a new patent application last month regarding oleophobic coating on sapphire. This further suggests that Apple is on track to include sapphire displays in the upcoming iPhone. Hence, GT looks to be in a good position to gain as a result of its partnership with Cupertino.
But there's more than just Apple
But Apple is not the only aspect that could drive GT's growth in the future. The company is focusing on other areas as well to improve profitability. GT is also working on ensuring strategic and operational flexibility to take advantage of many growth opportunities.
GT expects gains within next 18 months from its diversification initiatives and investments made in LED, power electronics, and advanced solar and industrial markets. In the LED sector, the company expects better demand for its LED applications. Also, due to the high utilization rates of its customers and improvements in the LED business, GT expects its HVPE and PVD equipment offerings to record good growth.
On the other hand, GT is seeing weakness in its solar segment as a result of weak demand. But, with Tier 1 solar companies reporting positive margins as a result of new capital investments, this business should also improve. According to a recent forecast by Solarbuzz, demand for solar products was 36 gigawatts last year, while in 2014, this demand is expected to grow to approximately 49 gigawatts. This resurgence in the solar sector should enhance GT's growth prospects going forward.
Moving on to GT's technology business, the company has many new products in the pipeline. With customers indicating an interest in larger-size multicrystalline ingots, GT is focusing on its next-generation DSS technology. Also, GT is witnessing changes in the polysilicon business as a result of changes in the tariff structures, closures of uneconomical supply, and end market growth.
As a result, GT expects polysilicon prices to improve in the future, while increased demand from the Asian and Middle East markets is yet another positive. One of GT's customers in Asia is restarting capacity expansion in order to meet the expected demand for polysilicon due to price improvements, which is why even this market should be a growth driver for GT.
Also, the company is bringing in new technology for improving solar cells and modules. With this robust outlook, GT's future looks pretty bright.
Over the next five years, GT's earnings are expected to grow at an outstanding CAGR of almost 48%. Now considering that the stock trades at just 23 times forward earnings, it looks like a bargain relative to the growth rate. The boost in the sapphire business due to Apple and the resurgence in the solar market should propel GT to new highs in the future, making it a good pick for the long run.
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.