Friday - BofA Securities adjusted its stance on Microchip Technology (NASDAQ:MCHP), downgrading the stock from Buy to Neutral and reducing the price target to $90 from the previous $110.
The decision is based on anticipated cyclical challenges that may continue over the next few quarters. The firm also anticipates a more subdued rebound in calendar year 2025 than the market consensus, citing persistently high inventory levels as a contributing factor.
The analyst from BofA Securities highlighted Microchip Technology's strong free cash flow (FCF), consistent execution, and cost discipline as positive aspects of the company's performance.
Despite these strengths, the firm has revised its forecasted earnings per share (EPS) for the fiscal years 2024, 2025, and 2026 downward by 12%, 13%, and 7%, respectively, to $2.03, $2.79, and $3.50.
The new price objective of $90 is based on a 39 times multiple of the company's estimated calendar year 2025 enterprise value to free cash flow (EV/FCF), which is slightly lower than the previously used 40 times multiple.
This adjustment reflects concerns over a prolonged downturn, although the valuation remains within the comparative group range of 16 to 50 times.
BofA Securities anticipates a modest quarter-over-quarter rebound in the December quarter, traditionally a weaker period for the company. For calendar year 2025, the firm forecasts Microchip Technology's sales to reach approximately $5.5 billion, an increase of around 13% year-over-year, which aligns with the peer growth range of 8% to 15%. The analyst suggests that there could be potential upside to this projection, given the easier year-over-year comparisons.
"In other recent news, Microchip Technology Incorporated (NASDAQ:MCHP) disclosed its first-quarter financial results and announced the upcoming retirement of its Executive Chair, Steve Sanghi.
The company also launched its PIC64 High-Performance Spaceflight Computing (PIC64-HPSC) microprocessors and priced $1.1 billion in Convertible Senior Notes due in 2030. Mizuho Securities upgraded Microchip's stock from Neutral to Buy and increased the price target to $115.
Microchip Technology also expanded into the 64-bit microprocessor domain with the launch of its new PIC64 series. The company's PIC64-HPSC family is designed to provide the processing power required for real-time tasks such as hazard avoidance on the Moon's surface and support long-duration, deep-space missions with low power consumption.
These developments come as BofA Securities downgraded the stock from Buy to Neutral and reduced the price target to $90 from the previous $110, citing anticipated cyclical challenges and high inventory levels.
Despite the downgrade, the firm highlighted Microchip Technology's strong free cash flow, consistent execution, and cost discipline as positive aspects of the company's performance.
These are just some of the recent developments for Microchip Technology, demonstrating the company's continued efforts to innovate and adapt in a rapidly evolving industry."
InvestingPro Insights
In light of the recent analysis by BofA Securities on Microchip Technology (NASDAQ:MCHP), InvestingPro provides additional insights that may be of interest to investors. Despite the anticipated cyclical challenges, Microchip Technology has demonstrated resilience with a strong track record of dividend growth, having raised its dividend for 12 consecutive years. This could be a signal of the company's commitment to shareholder returns even in less favorable economic cycles. Moreover, Microchip Technology is recognized as a prominent player in the Semiconductors & Semiconductor Equipment industry, which may offer some stability given the industry's critical role in various sectors.
InvestingPro data shows that Microchip Technology has a market capitalization of $45.26 billion and is trading at a Price / Book multiple of 6.8 as of the last twelve months ending Q4 2024. The company has also maintained a healthy Gross Profit Margin of 65.44% over the same period. However, investors should note that analysts anticipate a sales decline in the current year, with revenue growth showing a decrease of 9.53% in the last twelve months as of Q4 2024.
For investors looking for more detailed analysis and additional metrics, InvestingPro offers a comprehensive list of tips and data for Microchip Technology. There are over 10 additional InvestingPro Tips available, including predictions on profitability and stock price volatility, which can be found at https://www.investing.com/pro/MCHP.
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