On Wednesday, UBS revised the rating for Melexis (EBR:MLXS) NV (MELE:BB) (OTC: MLXSF) stock, shifting from a Sell to a Neutral stance. The price target for the shares was also adjusted, now set at EUR59.00, a decrease from the previous EUR74.00 target. This change follows the company's recent performance and market trends.
Melexis, a company specializing in semiconductor solutions for the automotive sector, had shown notable resilience in the face of an industry downcycle. Over the past six months, the company's stock declined by approximately 11%, compared to an average downturn of around 14% among peers with exposure to the automotive industry. This performance was unexpected, given the broader challenges in the sector.
However, the release of weak guidance for the fourth quarter of 2024 has altered the outlook for Melexis. The company is expected to experience a prolonged period of inventory correction that could extend well into 2025. This adjustment period is anticipated to last longer than that of its competitors, as Melexis enters the downcycle at a later stage.
Despite these challenges, the recent significant drop in share price, which was around 20% following the results, has brought the valuation to a more attractive level. Melexis shares are now trading at approximately 15 times the 12-month forward price-to-earnings (P/E) ratio. This is notably lower than the 10-year average P/E ratio of 24 times. Based on these valuations and the recent developments, UBS believes the current market conditions are reflected in the stock's price, warranting the upgrade to a Neutral rating.
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