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Investing.com - Baird has upgraded STMicroelectronics (NYSE:STM) from Neutral to Outperform, more than doubling its price target to $50.00 from $23.00. The semiconductor giant, currently valued at $29.12 billion, has shown strong momentum with impressive returns over both one and three months, according to InvestingPro data.
The upgrade comes as Baird anticipates an ongoing semiconductor cycle recovery, gross margin expansion, and a bottom in silicon carbide (SiC) revenue for the chipmaker. While the company’s current gross margin stands at 37.47% and revenue has declined 25.35% over the last twelve months, the firm also raised its estimates for the second half of 2025 and 2026. InvestingPro analysis indicates the stock is currently undervalued, with 8 additional exclusive insights available to subscribers.
Gross margin recovery is expected to accelerate in the third quarter, with the negative 170 basis point impact from yield recovery at fabs following early-year shutdowns set to disappear by the fourth quarter. Utilization rates will continue to improve as the company ramps up its 300mm wafer capacity, which currently represents 42% of total production and is targeted to reach 57% by 2027.
STMicroelectronics plans to reduce capital expenditure to 15% of revenue in 2025-2027, down from 21% in previous years, as it focuses on 300mm migrations rather than new capacity. This shift is expected to create a depreciation tailwind for the company.
With industrial revenue having declined 64% from peak to trough and automotive revenue down 47%, Baird expects inventory normalization in these key markets by the end of this year, setting up significant easy comparisons starting in the first half of 2026.
In other recent news, STMicroelectronics has experienced several noteworthy developments. The semiconductor company reported a positive shift in its earnings outlook, with management expressing confidence that the first quarter will be a low point, and second-quarter sales are projected to reach $2.71 billion, a 7.7% increase quarter over quarter. Despite positive trends in the industrial sector, the automotive sector’s demand has not met expectations, and a year-over-year decline is anticipated for fiscal year 2025. Analysts at BofA Securities have made slight adjustments to their sales estimates for fiscal years 2025-2027 and reduced gross margin projections due to higher operating expenses and inventory challenges. Consequently, BofA Securities lowered their price target for STMicroelectronics to $25, maintaining a neutral rating. Earlier, BofA Securities had also reduced the price target to $27, reflecting potential risks related to pre-tariff stock pull-ins and foreign exchange challenges. Meanwhile, TD Cowen raised its price target to $30, highlighting positive sentiment about the company’s technology portfolio and customer-specific opportunities. However, TD Cowen maintained a Hold rating, indicating the need for a clearer path to earnings beats to justify a more optimistic outlook.
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