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Investing.com -- Wells Fargo initiated coverage of Microchip Technology with an Equal Weight rating and a $60 price target, saying the chipmaker’s recovery potential is already priced into the stock.
The bank said Microchip’s improved inventory position should help revenue grow faster than usual over the next three quarters, but high expectations make it difficult for the company to deliver positive surprises.
“Elevated expectations… create a difficult guide setup,” the note said.
Wells Fargo added that market forecasts imply Microchip’s revenue will outpace peers for the next nine quarters, but still remain below historical levels relative to the industry.
On margins, it said improvements in utilization and inventory reserves could lift gross margin into the low 60% range by 2026, above Wall Street estimates, though “already reflected in buyside expectations.”
The bank expects Microchip to prioritize debt reduction over dividend growth, noting net debt remains high at 4.2 times EBITDA. It estimates revenue of $5.36 billion and earnings of $2.34 per share in 2026, rising to $6.27 billion and $3.17 in 2027.
“Our $60 price target is based on 26 times our 2026 earnings estimate,” Wells Fargo wrote, adding that the shares already trade above historical levels.