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On Thursday, Stifel analysts adjusted their outlook on Microchip Technology stock (NASDAQ:MCHP), reducing the price target from $80.00 to $60.00, while still maintaining a Buy rating. The adjustment comes amid an extensive inventory correction and an uncertain macroeconomic environment. The stock, currently trading at $37.95, has experienced significant pressure, declining over 54% in the past year. According to InvestingPro analysis, the company appears fairly valued at current levels, with analysts setting price targets ranging from $35 to $75.
The firm acknowledged the challenges faced by Microchip Technology, noting the current inventory correction has been significant. Despite these challenges, Stifel analysts expect the company to guide for sequential revenue growth in the June quarter, although they also suggest there may be a downside bias relative to their current estimates. InvestingPro data reveals the company maintains strong fundamentals with a current ratio of 2.25 and an Altman Z-Score of 4.03, indicating solid financial health despite recent headwinds. Get access to 12+ additional exclusive ProTips and comprehensive analysis through InvestingPro’s detailed research reports.
Microchip Technology’s Days of Inventory (DOI) reached a record high of 266 days in the third fiscal quarter of 2025. The company’s management has prioritized reducing the DOI to a more typical range of 130-150 days. The planned foundry closures and resizing are part of the strategy to address the high DOI, alongside anticipated revenue growth in the fiscal year 2026.
Additionally, the company has restructured its Long-Term Agreements (LTAs) with foundry partners to mitigate the impact of significant shortfall penalties. Management expects to incur approximately $45 million in charges for the cancellation of certain LTAs, which will be recognized in the March quarter. However, they do not foresee substantial cash outflows moving forward as these charges are mostly related to the forfeiture of advance payments.
The strategic changes implemented by Microchip Technology are aimed at streamlining operations and improving financial performance in the face of a challenging inventory and economic landscape. Stifel’s revised price target reflects these efforts and the firm’s continued confidence in the company’s prospects. Notable strengths include the company’s 13-year streak of dividend increases and maintained dividend payments for 24 consecutive years, with a current yield of 4.8%. For deeper insights into Microchip Technology’s valuation and prospects, access the comprehensive Pro Research Report available on InvestingPro, covering 1,400+ top US stocks with expert analysis and actionable intelligence.
In other recent news, Microchip Technology Incorporated has announced the pricing of a $1.35 billion public offering of depositary shares, each representing a 1/20th interest in a 7.50% Series A Mandatory Convertible Preferred Stock. This offering is expected to generate net proceeds of approximately $1.32 billion, which will be used to finance capped call transactions and repay outstanding debt. Concurrently, Moody’s Ratings downgraded Microchip’s senior unsecured rating from Baa1 to Baa2, citing a weakened financial profile due to a significant decrease in earnings. Despite the downgrade, Moody’s expects revenue growth to rebound by late 2025.
Microchip is also selling its Tempe, Arizona-based wafer fabrication facility, Fab 2, as part of its restructuring plan to improve operational efficiency. The sale will be managed by Macquarie Group (OTC:MQBKY), which has extensive experience in semiconductor and technology transactions. Additionally, Microchip has entered into an agreement to issue 27 million depositary shares linked to its convertible preferred stock, with J.P. Morgan Securities LLC, BofA Securities, Inc., and BNP Paribas (OTC:BNPQY) Securities Corp. acting as underwriters. Furthermore, the company has launched its BR235 and BR235D series power relays, designed for critical aerospace and defense applications. These recent developments reflect Microchip’s strategic maneuvers to optimize its operations and financial standing.
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