🎈 Up Big Today: Find today's biggest gainers with our free screenerTry Stock Screener

J.P. Morgan cuts STMicro PT on inventory woes

Published 09/12/2024, 13:58
© Reuters
STMPA
-
STM
-

Investing.com -- STMicroelectronics (EPA:STMPA) has been downgraded to a "neutral" rating from "overweight" by J.P. Morgan analysts in a research note dated Monday. 

The change in outlook reflects ongoing challenges in the semiconductor company’s key end markets, notably the automotive sector, and a lack of short-term growth catalysts.

As per the analysts, the automotive segment, which accounts for about 46% of STMicro’s revenue, is expected to continue grappling with elevated inventory levels into 2025. 

Analysts flagged that inventory destocking in the automotive supply chain has been slower than anticipated, with tier-1 auto suppliers reporting higher-than-average inventory days compared to pre-pandemic levels. 

This situation poses a significant risk to STMicro’s revenue and profitability in the near term.

In the industrial segment, while inventory levels are gradually declining, the pace of normalization remains insufficient to offset broader market challenges. J.P. Morgan noted that the industrial sector, another crucial revenue driver for STMicro, is still burdened by inventory overhang, which is expected to linger through the first half of 2025.

Adding to these headwinds, the company has signaled a weak start to the upcoming year. STMicro’s guidance suggests a sequential sales decline of about 18% in the first quarter of 2025 compared to the fourth quarter of 2024. 

This anticipated downturn reflects broader market pressures, including declining gross margins due to lower capacity utilization, reduced capacity reservation fees, and price declines that were previously mitigated by supply shortages.

The analysts at J.P. Morgan adjusted its price target for STMicro to €30 from the earlier €35, reflecting a more cautious outlook on the company’s earnings potential. 

Analysts expect STMicro’s 2025 earnings before interest and taxes to reach $861 million, significantly below the Bloomberg consensus of $1.4 billion. 

This sharp divergence underscores the extent of the challenges analysts foresee for the company in the near term.

Despite a longer-term positive view tied to potential improvements in its high-margin microcontroller unit business and opportunities from a new Apple (NASDAQ:AAPL) contract in the latter half of 2025, J.P. Morgan emphasized the importance of caution. 

They noted that the magnitude of the earnings risks and inventory issues in the automotive and industrial markets currently outweigh these potential positives.

With this downgrade, J.P. Morgan’s position aligns STMicro’s rating with that of its key competitor, Infineon (OTC:IFNNY) Technologies, which also holds a neutral rating. 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.