TSEM

We rate TOWER SEMICONDUCTOR LTD (TSEM) as a Buy with a composite score of 69.3/100 at a current price of $125.67. The stock scores above average across the majority of our six quantitative factors and ranks #112 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in momentum (87th percentile) and value (83th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (51/100), High uncertainty, and Exemplary capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

TOWER SEMICONDUCTOR LTD holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 69.3/100 places it at rank #112 in our full 7,333-stock universe. At $5.7B in market capitalization, TOWER SEMICONDUCTOR LTD is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 1% and favorable momentum (87th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 24% (-18.9pp vs sector) narrow to operating margins of 13% (+12.0pp vs sector) and net margins of 14.4%, yielding a gross-to-net conversion rate of 61%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $125.67, TOWER SEMICONDUCTOR LTD appears undervalued relative to its fundamentals. Our value factor score of 83/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 68.1x (a 206% premium to the sector median of 22.3x), EV/EBITDA of 8.3x (discounted to peers), P/B of 5.4x, P/S of 2.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to TOWER SEMICONDUCTOR LTD. Key risk factors include elevated market sensitivity (beta of 1.73), elevated valuation multiple (P/E 68.1x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.73); elevated valuation multiple (P/E 68.1x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 49th percentile and quality factor at the 72th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: conservative leverage (7% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate TOWER SEMICONDUCTOR LTD's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 31.2%, disciplined leverage (7% D/E). Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — TOWER SEMICONDUCTOR LTD meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 26.9% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, TOWER SEMICONDUCTOR LTD receives a Buy rating with a composite score of 69.3/100 (rank #112 of 7,333). Our quantitative framework assigns a Narrow Moat (51/100, trend: stable), High uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 66/100.

Our analysis supports a constructive view on TOWER SEMICONDUCTOR LTD. The combination of identifiable competitive advantages, high uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.