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On Friday, Morgan Stanley (NYSE:MS) initiated coverage on Himax Technologies (NASDAQ:HIMX), a $1.32 billion market cap semiconductor company, with an Overweight rating and set a price target of $8.80. According to InvestingPro data, the stock has shown strong momentum with a 28.31% return over the past six months, despite trading below its 52-week high of $13.91. The firm anticipates that Himax will expand its non-driver integrated circuit (IC) businesses, leveraging opportunities in cloud AI (CPO) and edge AI (AI glasses and PC) markets. This strategic shift is expected to contribute positively to the company’s revenue growth and profit margins over the coming years.
According to Morgan Stanley, Himax’s non-driver IC business is projected to grow from 17% of its total revenue in 2024 to 31% by 2027. This growth will be supported by the company’s advancements in wafer-level optics (WLO) for cloud AI, liquid crystal on silicon (LCoS) technology, and WiseEye solutions. These areas are seen as key drivers for the company’s future performance. With current annual revenue of $914.38M and a healthy gross margin of 30.73%, InvestingPro analysis suggests the company is well-positioned to execute this growth strategy, with multiple ProTips indicating strong financial health.
In addition to the expansion in the non-driver IC sector, Himax’s traditional display driver IC (DDIC) business is expected to continue providing stable cash flows. Morgan Stanley believes that a more favorable product mix will contribute to this stability. The firm’s price target of $8.80 reflects a 21 times multiple on the company’s estimated 2025 earnings per share (EPS), which is slightly above one standard deviation of its historical price-to-earnings (P/E) ratio since 2020.
The Overweight rating and price target are based on Morgan Stanley’s confidence in Himax’s ability to capitalize on emerging technology trends. The firm’s analysis suggests that Himax’s progress in key areas justifies a higher valuation compared to its historical averages. InvestingPro data supports this view, showing the stock trading at an attractive PEG ratio of 0.26 and a P/E of 14.98x, while maintaining profitability with net income of $87.24M. For deeper insights into Himax’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Himax Technologies has not yet commented on the new coverage or the price target set by Morgan Stanley. The company’s stock performance in the coming months will likely be influenced by investor’s assessments of its growth potential in the non-driver IC markets and the ongoing success of its DDIC business.
In other recent news, Himax Technologies reported its fourth quarter 2024 earnings, meeting analysts’ expectations for earnings per share (EPS) and surpassing revenue forecasts. The company posted an EPS of $0.14, aligning with predictions, and reported revenues of $237.2 million, exceeding the anticipated $209.8 million. Himax’s revenue for the quarter showed a 6.7% sequential increase and a 4.2% year-over-year growth. The company remains a leader in the automotive display integrated circuit (IC) market, holding over a 50% market share in automotive TDDI. Looking forward, Himax anticipates a sequential revenue decline of 8.5% to 12.5% for the first quarter of 2025, with gross margins expected to stay around 30.5%. Despite the expected decline, the company remains optimistic about its automotive business, which accounted for nearly half of its total revenue in 2024. Additionally, Himax is advancing its CPO technology, with expectations of substantial revenue upon mass production in 2026. Analysts from Nomura have shown interest in the company’s CPO technology, which is currently in the engineering validation and trial production stage.
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