Headquartered in Hsinchu City, Taiwan, United Microelectronics Corporation (UMC) operates internationally as a semiconductor wafer foundry. The company serves fabless design companies and integrated device manufacturers. 

Despite slowing global semiconductor sales, UMC’s net sales for October increased 27.1% year-over-year to NT$24.34 million ($785.10 thousand). Moreover, from January to October, the company’s net sales increased 35.9% year-over-year to NT$235.21 million ($7.59 million).

In September, MRAM technology company Avalanche Technology and UMC made their new High-Reliability Persistent SRAM (P-SRAM) memory devices available. This enhances the company’s ability to meet the growing demand for memory devices.

The stock is down 13.7% over the past six months. However, it has gained 24.1% over the past month to close its last trading session at $7.22. Also, the stock is up 12.1% over the past five days.

Here are the factors that could influence UMC’s performance in the near term:

Solid Financials

For the fiscal third quarter ended September 30, UMC’s operating revenues increased 34.9% year-over-year to $2.38 billion. Its operating income rose 99.3% from the prior-year quarter to $950 million. Its net income and earnings per ADS came in at $861 million and $0.345, up 57.6% and 53.3% year-over-year, respectively.

Cheap Valuation

In terms of forward P/E, UMC is trading at 6.54x, 72.5% lower than the industry average of 23.73x. The stock’s forward EV/EBITDA multiple of 3.01 is 76.3% lower than the industry average of 12.68. In terms of forward EV/EBIT, it is trading at 4.30x, 74% lower than the industry average of 16.57x.

Impressive Profitability

UMC’s trailing-12-month EBIT margin and net income margin of 36.21% and 31.14% are 452.9% and 751.4% higher than the industry averages of 6.55% and 3.66%, respectively. Its trailing-12-month ROCE, ROTC, and ROTA of 29.39%, 17.03%, and 16.19% are 385.3%, 395.9%, and 797.7% higher than their respective industry averages of 6.06%, 3.43%, and 1.80%.

POWR Ratings Reflect Promising Prospects

UMC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UMC has a Quality grade of A, in sync with its strong profitability. The stock also has a B grade for Value, consistent with its lower-than-industry valuation multiples.

In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #3.

Click here to see the additional POWR Ratings for UMC (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Semiconductor & Wireless Chip industry here.

Bottom Line

The company’s net sales growth for the first 10 months of this year underscores its solid revenue stream. Moreover, its strong bottom line growth in the last reported quarter is promising. With its EPS expected to increase 34.1% per annum over the next five years, this stock might be an ideal buy right now.

How Does United Microelectronics Corporation (UMC) Stack up Against Its Peers?

While UMC has an overall POWR Rating of A, one might consider looking at its industry peers, Renesas Electronics Corporation (RNECF) and STMicroelectronics N.V. (STM), which also have an overall A (Strong Buy) rating.

UMC shares rose $0.41 (+5.68%) in premarket trading Tuesday. Year-to-date, UMC has declined -35.73%, versus a -14.96% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

More...