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Investing.com - Baird has reiterated an Outperform rating and $50.00 price target on STMicroelectronics (NYSE:STM), citing significant fourth-quarter backlog improvement and expected return to year-over-year growth. According to InvestingPro data, the stock has experienced a significant 17.88% decline over the past week, potentially creating an attractive entry point as current analysis suggests the stock is undervalued.
The firm notes that STMicroelectronics’ fourth-quarter backlog has increased significantly compared to the third quarter, with all end markets except Automotive returning to year-over-year growth in the third quarter. Distributor inventories have declined substantially quarter-over-quarter, dropping by at least one month from over two months in the previous quarter. As a prominent player in the Semiconductors industry with a market capitalization of $23.62 billion, STM maintains strong financial health with a current ratio of 3.05, indicating robust liquidity.
Baird highlights that Automotive revenue, which represents about one-third of STM’s automotive segment, troughed in the first quarter and is expected to continue rebounding sequentially in both third and fourth quarters. Industrial revenue also bottomed in the first quarter and performed above expectations, while microcontroller units have returned to year-over-year growth.
The company’s gross margin outlook remains flat sequentially for the third quarter, primarily due to currency impacts of about 110 basis points and approximately 30 basis points from manufacturing restructuring costs. These factors are partially offset by a 30 basis point benefit from lower unused capacity charges.
Baird considers STM’s current valuation "very attractive" at 1.8 times enterprise value to sales, only 30% above book value, and less than 9 times the firm’s 2027 earnings per share estimate of $3, with all metrics significantly below their 5-year averages. InvestingPro analysis reveals additional compelling metrics, including an EV/EBITDA of 7.36x and a P/E ratio of 21.78x. The company has also maintained dividend payments for 27 consecutive years, demonstrating consistent shareholder returns. Get access to 8 more exclusive InvestingPro Tips and comprehensive valuation analysis with a subscription to InvestingPro.
In other recent news, Flex (NASDAQ:FLEX) Ltd. reported its latest earnings, maintaining its fiscal year 2026 outlook for cloud and power revenue at approximately $6.5 billion, indicating a 35% year-over-year growth. Raymond (NSE:RYMD) James analysts have noted that a portion of Flex’s recent multiple expansion is connected to its AI datacenter business. Meanwhile, STMicroelectronics has seen several updates from analysts. Baird upgraded STMicroelectronics from Neutral to Outperform, doubling its price target to $50, driven by expectations of a semiconductor cycle recovery and margin expansion. TD Cowen raised its price target for STMicroelectronics to $30 while maintaining a Hold rating, following discussions with the company’s investor relations. BofA Securities, however, lowered its price target for the company to $27, maintaining a Neutral rating. Despite this, BofA Securities increased its earnings per share estimates for 2025 and 2026, reflecting positive trends anticipated by the company’s CEO. These developments suggest a mixed but cautiously optimistic outlook for STMicroelectronics.
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