EU and US could reach trade deal this weekend - Reuters
On Tuesday, Evercore ISI, a prominent research firm, increased its price target on shares of Microchip Technology (NASDAQ:MCHP) to $71.00, up from the previous target of $65.00. The firm maintained an Outperform rating on the stock. Currently trading at $57.95 with a market capitalization of $31.17 billion, Microchip shows high valuation multiples according to InvestingPro data, with a P/E ratio of 102.14. Analysts at Evercore ISI highlighted a turning point in the company’s cycle, reiterating Microchip Technology as their top pick in the analog sector.
The analysts’ optimism stems from a variety of positive indicators observed in the company’s recent business update. They noted significant improvements in net bookings and a stabilizing backlog, which have reinforced their confidence in maintaining above-consensus estimates for Microchip’s March quarter performance. InvestingPro data reveals the company’s strong dividend history, having raised dividends for 13 consecutive years, with a current yield of 3.14%. Additionally, the analysts pointed out that January and February bookings showed a meaningful uptick compared to the December quarter.
Microchip Technology itself has suggested that distributor revenues are expected to reach a low point in the March quarter and is signaling that the period of inventory correction is coming to an end. Evercore ISI analysts believe that the company is currently shipping more than 40% below the actual consumption levels of its chips. This underlines their expectation that there is a higher probability of positive surprises in the company’s performance through 2025 than negative ones.
The revised price target of $71 reflects a 21 times multiple on Evercore ISI’s updated calendar year 2027 earnings per share estimate, which includes stock-based compensation (SBC), of $3.73. This estimate is then discounted back one year at a rate of 10%. The company maintains strong financial health with a current ratio of 2.25, indicating solid liquidity. The analysts’ commentary underscores their view that Microchip Technology is well-positioned for growth, with the potential for upside surprises in its financial results over the next few years. For comprehensive analysis and additional insights, access the detailed Pro Research Report available on InvestingPro.
In other recent news, Microchip Technology announced plans to cut approximately 2,000 jobs, equating to about 9% of its workforce, in response to declining demand from the automotive industry. The company expects the layoffs to incur costs between $30 million and $40 million, with full implementation by the end of the June quarter. Concurrently, Microchip Technology will close its Arizona manufacturing facilities earlier than planned, as part of a broader restructuring effort aimed at reducing costs and resizing its manufacturing footprint. These actions are anticipated to save the company around $90 million to $100 million annually in operating expenses.
In terms of financial projections, Microchip Technology has revised its long-term operating model, now aiming for industry-plus revenue growth with a gross margin of 65% and an operating margin of 40%. Mizuho (NYSE:MFG) Securities raised its price target for Microchip Technology shares to $68, maintaining an Outperform rating, citing the company’s strategic plans to drive growth and enhance profit margins. Jefferies also reiterated a Buy rating with a $70 price target, highlighting improved bookings trends as a positive indicator. Needham increased its price target to $66, acknowledging the company’s strategic adjustments and potential for increased profitability.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.