GT Advanced Technologies (GTAT) has been on a tearing run in 2014, appreciating more than 100%. However, shares of the sapphire supplier are currently taking a solid beating, after a UBS downgrade. As of this writing, GT Advanced is down close to 10%, as UBS has cut its rating on the stock from buy to neutral. UBS believes that GT's second-quarter sales will fall short of the high end of its guidance. But, in my opinion, investors should consider taking advantage of this drop, as GT Advanced has solid long-term prospects.
First, the company is expected to benefit strongly by supplying sapphire to Apple's (NASDAQ:AAPL) iPhone 6. It looks like GT has more or less sealed the Apple supplier spot, according to reports and Apple's patent. The company is aggressively expanding its sapphire capacity, indicating that it is on-track to land the spot in the upcoming iDevices. But, there is more to GT's prospects than just the iPhone. Apple is expected to use sapphire in the iWatch as well, and GT is also trying hard to tap other markets to power its growth.
Aiming for growth in solar
GT is looking to improve its presence in several areas. As I had pointed out in my last article:
"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."
Additionally, the company is witnessing positive developments in the solar industry. Margins of Tier 1 solar companies are improving, while demand is expected to jump to 49 gigawatts this year from 36 gigawatts last year. Apart from these markets, GT is also well-positioned with its Apple partnership.
Apple's deal is beneficial for both parties, as it would enable the smartphone giant to lock in supply of sapphire, which it uses for its camera lenses, along with the protective disk that functions as the Touch ID home button in the iPhone 5s. In addition, Apple will be able to make an un-scratchable alternative to traditional glass. Also, it will be much lighter and thinner than traditional glass.
Enter the iWatch
There are rumors in the market that Apple could use a sapphire display in the iPhone 6, and these rumors look all but confirmed. If this happens, GT would be in a profitable position. In addition, there's a probability that Apple will use sapphire for its upcoming iWatch, along with the iPhone. According to a report on MacRumors:
"Evidence has made clear that Apple is investing heavily in sapphire for its future products with the company working with partner GT Advanced Technologies to start production of the material in a new Arizona plant. Earlier reports suggested the sapphire is likely for the next-generation iPhone, but G 4 Games points to new reports from Asian supply chain sources speaking to MyDrivers and PCPOP claiming the iWatch will be the first Apple device to be equipped with the scratch-resistant material.
Though the iWatch would certainly benefit from a sapphire layer to protect its display, the volume of raw material and equipment Apple is purchasing hints at much bigger plans than a 2-inch watch display. Apple allegedly has ordered enough furnaces to manufacture approximately 200 million 5-inch sapphire displays, a volume which would meet the yearly demand for its iPhone product line. In 2013, Apple sold approximately 150 million iPhones worldwide."
If GT is also supplying sapphire for the iWatch, then it would be a solid boost for the company. According to analysts, the iWatch is expected to see solid momentum, bringing about a huge revenue boost for Apple. As reported on Business Insider:
"Morgan Stanley analyst Katy Huberty is out with a very bullish forecast for Apple's iWatch.
Huberty is predicting Apple does $17.5 billion in iWatch sales after the first twelve months it's on the market.
She's basing her call on sales of the iPhone and iPad. As you can see in this chart, each new Apple product has sold faster than the product that came before it. She thinks that the iWatch will sell faster than the iPad."
As mentioned above, each new Apple product has sold more than the product that came before it, according to Morgan Stanley. So, it won't be surprising if GT's revenue starts accelerating at a faster-than-expected rate going forward.
Projections and fundamentals
GT's bottom line is expected to accelerate at a terrific rate. According to analysts, the company's bottom line will improve 123% this year, followed by a whopping 875% next year. The long-term forecast is promising as well, with its bottom line expected to grow at a CAGR of 48% for the next five years.
In addition, the company has solid fundamentals. It has total cash of $406 million on the balance sheet, which easily covers its debt of $289 million. Also, at a forward P/E ratio of just 23, GT looks like an enticing investment, as its earnings are expected to grow at a terrific rate. All in all, it can be said that GT Advanced Technologies is a tech stock that investors shouldn't miss.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.