J.P. Morgan flags Melexis on Negative Catalyst Watch ahead of Q3, Investor Day

Investing.com -- J.P. Morgan has placed Belgian automotive semiconductor supplier Melexis (EBR:MLXS) on Negative Catalyst Watch, citing risks of a downward reset in consensus forecasts ahead of the company’s third-quarter results on October 29 and its Investor Day on November 5. 

While the brokerage expects Melexis to meet its Q3 guidance, it expressed caution over the company’s 2026 outlook, particularly in the core automotive segment, which accounts for roughly 90% of revenues.

According to J.P. Morgan, Melexis’ Q3 guide appears well supported by existing orders, although some turn orders were required. 

Commentary from auto-exposed peers indicates that while end markets may have passed the trough, uncertainty remains elevated. 

Gross margins are expected to improve mechanically in Q3 due to the non-repeat of inventory revaluation and restructuring charges, though higher depreciation and lower volumes are anticipated to weigh on second-half results.

Looking ahead to 2026, the brokerage highlighted several indicators of a challenging environment in the automotive sector. 

Risks include potential demand for “air-pockets” in the U.S., slowing vehicle sales in China, restructuring activity among European OEMs and suppliers, and cautious guidance from larger peers. 

J.P. Morgan now forecasts 6.6% constant currency growth for Melexis in 2026, below the company’s consensus of 11%, translating to estimates roughly 5% below on sales and 10% below on EBIT for that year.

For the upcoming Investor Day, J.P. Morgan expects Melexis to retain its existing mid-term targets, including Automotive sales CAGR guidance of at least 10% through 2030 and Beyond Automotive growth of at least 15%. 

However, the brokerage noted that the pace of growth in automotive electrification, premiumisation, and ADAS adoption may be slower than initially forecast in 2023. 

Gross margin targets of at least 45% and EBIT margin targets of at least 25% are expected to be confirmed, though trajectory could be moderated by elevated depreciation and less favorable pricing conditions.

Despite near-term caution, J.P. Morgan suggested Melexis could become constructive after a reset in market expectations, particularly following the Investor Day. 

The brokerage noted that Melexis’ historical premium relative to vertically integrated auto-exposed IDMs could be regained as its capital-light business model and financial profile become more apparent.

J.P. Morgan maintained a Neutral rating on Melexis with a Dec-26 price target of €70. The target is based on an 11.5x 2027 EBITDA multiple, a premium of roughly 10-20% compared with Infineon, reflecting Melexis’ less capital-intensive, fab-less model.

The multiple was raised from 10x previously to align with recent peer valuations. Upside risks to the rating include extended semiconductor supply shortages, higher-than-expected content or market share growth, and stronger automotive end-market demand. 

Downside risks include slowing order momentum, potential market share loss among key customers, and operational or product-specific disruptions.