S&P 500 pulls back from record high as chip-led slump in tech weighs
Investing.com -- Baird Equity Research upgraded STMicroelectronics N.V. EPA:STMPA) to “outperform” and raised its price target to $50 from $23, citing improving gross margins, a rebound in silicon carbide (SiC) revenue, and stronger content in new products, in a note dated Tuesday.
The brokerage raised its estimates for the second half of 2025 and for 2026.
The new price target implies a 52% upside from the July 21 close of $32.81 and is based on a 17x multiple of Baird’s preliminary 2027 GAAP EPS estimate of $3, in line with ST’s five-year average.
Baird said gross margin recovery should accelerate beginning in the third quarter. A 170 basis point drag in the second quarter from yield recovery at fabs following early-year shutdowns is expected to be resolved by the fourth quarter.
Utilization rates are improving alongside the continued ramp of 300mm wafer production, which accounted for 42% of total output in 2024 and is targeted to reach 57% by 2027.
ST is already using the larger wafers for high-end microcontrollers and plans to migrate analog products next.
Capital expenditures are projected at 15% of revenue between 2025 and 2027, down from 21% over 2020-24.
The current phase focuses on transitions to 300mm wafers, not new capacity, and is expected to create a depreciation tailwind.
Revenue is expected to benefit from easier year-over-year comparisons and normalization of inventory in industrial and automotive markets.
Industrial revenue declined 64% peak to trough and automotive fell 47%. Both segments are expected to recover following a revenue bottom in the first quarter of 2025.
In the smartphone segment, Baird forecasts several hundred million dollars in additional second-half revenue due to higher content.
SiC revenue, which bottomed in the first quarter, is rebounding, helped by the ramp-up of ST’s joint venture with Sanan Optoelectronics.
The JV is supplying next-generation Chinese EV platforms, including from BYD (SZ:002594) and Geely. ST’s SiC market share with Tesla (NASDAQ:TSLA) stabilized earlier this year in the low 50% range.
Other drivers include data center demand for edge AI and power products, where ST offers SiC, gallium nitride, and microcontrollers.
In satellite, the company remains the sole-source supplier to SpaceX and is preparing for a second customer ramp in the second half.
Baird flagged risks including currency fluctuations, a potential reversal in consumer demand trends seen in April, and continued elevated inventories across distribution channels.
STMicroelectronics reported 2024 GAAP EPS of $1.66, with earnings expected to fall to $0.80 in 2025 before recovering to $1.60 in 2026.
The stock’s price-to-earnings multiple stands at 41.0x for 2025 and 20.5x for 2026, according to Baird’s projections.