Revenue and stock price projection
Key assumptions
1. The exclusive contract with Apple will not be defaulted. Both GT and Apple are now hiring for various positions at the Arizona sapphire plant, with GT’s jobsite having listed 33 jobs in Mesa, AZ and Apple’s jobsite listing 4 jobs at the same site. GT is on track to install 1500 furnaces at the Mesa site which will double the total sapphire capacity globally. All these indicated that the contract is on-going and the probability of default is low.
2. Thin Sapphire flake will not only be used as button cover but also as one of touch screen cover tiers, and this will be the leading fashion trend as Apple accomplished in the past. For other mobile manufactures will also turn to sapphire cover, the demand of sapphire will rise, and correspondingly, sapphire price rises.
3. With incandescent bulb being banned, it is fading out from lighting industry, and LED bulb is taking off. As one of the materials of LED bulb, the same as mobile cover case, demand of sapphire will rise.
Prediction
GTAT announced a multi-year, $578 million contract with Apple to supply advanced sapphire material. Apple's investment is a prepayment funding to accelerate development of GTAT's "next generation, large capacity" Advanced Sapphire Furnace, which is designed to produce high quality sapphire material at a breakthrough low price. And sapphire will contribute about 800m at first year in base case, 1000m in upside case, and 600m in down side case.
The prediction is as below. Upside Case
Base Case
Downside Case
Revenue from sapphire
1,000,000,000
800,000,000
600,000,000
Revenue from other
100,000,000
50,000,000
30,000,000
Total Revenue
1,100,000,000
850,000,000
630,000,000
Net profit margin
14%
14%
14%
Net income
154,000,000
119,000,000
88,200,000
Shares
134,000,000
134,000,000
134,000,000
Earnings per share
1.15
0.89
0.66
P/E Ratio
(industry average)
13
13
13
Stock price
14.94
11.54
8.56
Risk
1. The sapphire market is facing keen competition, though GATA has this sapphire flake tech, it can be replaced by other new tech developed by competitors, which will cause high loss of GTAT.
2. 80 percent or more
