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On Tuesday, Mizuho (NYSE:MFG) Securities updated its outlook on Microchip Technology shares, raising the price target to $68 from the previous $58. The firm maintained its Outperform rating on the (NASDAQ:MCHP) stock, which currently trades at $57.95 with a market capitalization of $31.17 billion. According to InvestingPro analysis, the stock is currently trading above its Fair Value, with 15 analysts recently revising their earnings expectations downward. The adjustment follows Microchip Technology’s recent Business Update meeting, where the company outlined a strategic 9-point plan aimed at driving growth and enhancing profit margins.
The company’s restructuring initiatives, particularly within its Fab 2, 4, and 5 operations, are anticipated to yield annual cost savings between $90 million and $115 million. Microchip Technology also introduced new long-term financial goals, which include revenue growth surpassing industry averages, a gross margin (GM) of 65%, and an operating margin (OM) of 40%. These targets are slightly below previous ones, which Mizuho noted as a minor setback. The current gross profit margin stands at 57.95%, according to InvestingPro data, which also reveals that the company maintains a strong dividend track record with 24 consecutive years of payments and a current yield of 3.14%. The emphasis on improving the cost structure was seen positively.
Mizuho’s analysts highlighted several encouraging signs for Microchip Technology’s near-term performance. The potential bottoming out of distribution sales in the March quarter may signal market stabilization. Additionally, the company experienced robust growth in bookings during January and February, despite the Chinese New Year holiday, which typically slows business activity. The backlog has also stabilized, although it remains below previous peaks, with no immediate "hockey stick" recovery expected.
In light of these developments, Mizuho reiterated its Outperform rating on the stock. The revised price target of $68 reflects the firm’s confidence in Microchip Technology’s ability to achieve better mid- to long-term growth, as suggested by the improving backlog and bookings trends. The raised price target and maintained rating come as Microchip Technology positions itself for a return to growth and margin improvement.
In other recent news, Microchip Technology announced plans to cut approximately 2,000 jobs, representing about 9% of its workforce, in response to declining demand from the automotive industry. This restructuring will incur costs between $30 million and $40 million, including severance and other related expenses, and is expected to be completed by the end of June. The company also plans to close its Arizona chip manufacturing facilities earlier than initially anticipated, ceasing operations in May. Concurrently, Microchip Technology’s management has revised its long-term operating model, forecasting industry-plus revenue growth with adjustments to its non-GAAP gross and operating margins. Analysts at Needham have responded by raising the price target for Microchip Technology shares from $60.00 to $66.00, maintaining a Buy rating based on improved bookings and a stabilizing backlog. Jefferies also reiterated a Buy rating for the company, citing improved booking trends as a positive indicator for its operational performance. Additionally, Robert A. Rango has retired from the company’s Board of Directors, with no immediate successor announced. These developments reflect Microchip Technology’s strategic adjustments amid shifting market conditions.
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