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On Thursday, BofA Securities adjusted its outlook on STMicroelectronics (NYSE: STM), reducing the price target from $28.00 to $25.00, yet maintaining a neutral stance on the stock. The revision follows the company’s latest earnings report and guidance. According to InvestingPro data, STM’s stock has declined nearly 48% over the past year, though analysis suggests the stock may be undervalued at current levels. The company maintains a "GOOD" Financial Health score, supported by strong fundamentals including a healthy balance sheet.
STMicroelectronics management has indicated a positive shift in tone, expressing confidence that the first quarter will represent a low point for the company, with second-quarter sales expected to reach $2.71 billion, a 7.7% increase quarter over quarter. The industrial sector shows signs of recovery, as inventory levels in Asia have begun to decrease and an 8% quarter-over-quarter growth is anticipated for the second quarter. Despite this, the automotive sector’s demand has not picked up as expected, even with significant design wins in the first quarter. Management anticipates a year-over-year decline for fiscal year 2025, aligning with InvestingPro data showing current revenue at $13.27 billion with a 23.24% decline in the last twelve months.
The company is currently dealing with record-high inventory levels, which, along with unused capacity charges, continue to affect gross margins (GMs), currently at 39.34%. Given the ongoing uncertainty for fiscal year 2025, BofA Securities reiterated its neutral rating on STMicroelectronics shares. For deeper insights into STM’s financial health and valuation metrics, investors can access comprehensive analysis through InvestingPro, which offers additional ProTips and detailed financial metrics.
Analysts at BofA Securities have made slight adjustments to their sales estimates for fiscal years 2025-2027 but have reduced the gross margin projections by 150-211 basis points and earnings per share (EPS) by approximately 8.5%-18%. These changes are attributed to higher operating expenses and persistent inventory challenges. Consequently, the price objective has been lowered to €22/$25, based on the same 5.4x 2026 estimated EV/EBITDA multiple. This valuation is at the lower end of the historical range, excluding the COVID period, which is typically between 5x-10x, reflecting the disappointing leverage in gross margins.
In other recent news, STMicroelectronics has announced a major revamp of its manufacturing operations, focusing on advanced manufacturing infrastructure and technology research and development. This initiative, spanning fiscal years 2025 to 2027, aims to achieve significant annual cost savings by the end of 2027. In a strategic move, STMicroelectronics has partnered with Innoscience to enhance gallium nitride (GaN) power solutions, aiming to bolster supply chain resilience and meet global customer demands. Additionally, the company has introduced a new AI-focused chip in collaboration with Amazon (NASDAQ:AMZN)’s AWS, targeting the AI data center equipment market. In governance developments, Maurizio Tamagnini has resigned from the Supervisory Board, with no successor announced yet. Jefferies has upgraded STMicroelectronics’ stock rating from Hold to Buy, raising the price target to EUR34, citing expected growth in the second half of 2025. The upgrade is based on anticipated operational normalization and increased demand in industrial and automotive sectors. These recent developments reflect STMicroelectronics’ ongoing efforts to innovate and adapt within the competitive semiconductor industry.
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