On Monday, BofA Securities expressed a steady outlook on STMicroelectronics (NYSE:STM) stock, maintaining a Buy rating with a $46.00 price target. The firm's analysis suggests that the semiconductor company has the potential to reduce its overall costs by 4% to 6% through adjustments to its cost base in response to changes in the demand environment, pricing pressures, and increased competition, particularly in China.
STMicroelectronics, which is expanding its 300mm and silicon carbide (SiC) fabrication facilities, faces higher fixed costs amidst these expansions. BofA Securities acknowledges that aggressive cost-cutting measures might be limited due to significant shareholding by France and Italy, which together hold 27.5% of the shares and have an interest in preserving employment within their respective countries.
Despite these constraints, the firm believes that STMicroelectronics presents an attractive risk/reward profile. This is based on the company's current valuation, trading at less than 10 times its projected 2026 price-to-earnings ratio (PER) and 5.3 times its enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). The maintained Buy rating and price target reflect confidence in the stock's performance and the company's ability to navigate the challenging market conditions.
The price target of $46.00 for STMicroelectronics remains unchanged, as BofA Securities continues to consider the stock a top pick in the sector. The firm's stance is grounded on the belief that the company's strategic measures to adjust its cost base and the current market valuations present a compelling case for investors.
In other recent news, STMicroelectronics has faced a challenging period marked by high inventory levels and weakening demand in the industrial and automotive sectors. The company reported lower-than-expected earnings guidance for Q3 and the full year 2024, with gross margins for the June quarter at 40.1%, expected to drop to around 38% for the September quarter.
Despite this, Craig-Hallum maintains a Buy rating on the stock, with a reduced price target of $42. STMicroelectronics reported Q1 2024 net revenues of $3.47 billion and a gross margin of 41.7%, with a net capital expenditure of about $2.5 billion for strategic manufacturing initiatives throughout the year.
Goldman Sachs upgraded STMicroelectronics from Sell to Neutral, increasing the price target to EUR42.50, reflecting improvements in demand across various end-markets.
In related news, Wolfspeed (NYSE:WOLF) delayed the construction of a $3 billion chip manufacturing plant in Germany, shifting focus to its New York site amid a softened EV market in Europe and the U.S. This development underscores the challenges faced by the European Union in bolstering its semiconductor industry.
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