On Friday, Mizuho Securities expressed a more optimistic outlook on Microchip Technology (NASDAQ:MCHP), upgrading the stock from Neutral to Buy and increasing the price target to $115 from $85.
The firm anticipates that Microchip Technology is poised for a turnaround after a period of declining quarterly top-line guidance and gross margins, coupled with reduced factory utilization and significant cuts to capital expenditures for fiscal year 2025.
The analyst noted that despite recent challenges, including a shift in OEM design architectures and the adoption of Arm-based processors, Microchip Technology's inventories could be reaching their peak. This development might lead to a modest improvement in the second half of 2024 and into 2025. The firm maintained its June quarter estimates for Microchip at $1.2 billion in revenue and $0.52 earnings per share, which aligns with consensus estimates.
Looking further ahead, Mizuho has raised its fiscal year 2026 estimates from $7 billion in revenue and $4.38 earnings per share to $7.1 billion and $4.50, respectively. These projections are above the consensus of $6.9 billion in revenue and $4.19 earnings per share. Additionally, the firm introduced its fiscal year 2027 estimates at $8 billion in revenue and $5.26 earnings per share, surpassing the consensus forecast of $7.7 billion and $4.99.
The price target of $115 is based on 25.6 times the firm's estimated earnings per share for fiscal year 2026, which is roughly in line with the group multiples of approximately 24 times and slightly above the Philadelphia Semiconductor Index (SOX) at around 23 times.
The firm's positive stance is supported by the expectation of a 54% year-over-year increase in earnings per share and potential tailwinds for Microchip Technology due to a cyclical recovery and improvements in supply chains for microcontrollers and analog components.
InvestingPro Insights
The recent upgrade of Microchip Technology (NASDAQ:MCHP) by Mizuho Securities to a Buy rating comes at a time when the company exhibits a mixed financial landscape. According to InvestingPro data, Microchip Technology has a market capitalization of $53.03 billion and trades at a P/E ratio of 27.68, suggesting a relatively high valuation compared to some industry counterparts. While analysts have revised earnings downwards for the upcoming period, indicating potential headwinds, Microchip Technology has shown resilience with a dividend yield of 1.84%, having raised its dividend for 12 consecutive years.
InvestingPro Tips highlight that Microchip Technology is trading near its 52-week high and at a high revenue valuation multiple, which may be of interest to investors looking for companies with strong price performance. It's also important to note that while analysts predict a sales decline in the current year, Microchip Technology has been profitable over the last twelve months, and the company is expected to remain profitable this year.
For investors seeking more in-depth analysis and additional insights, InvestingPro offers further tips on Microchip Technology's performance and future outlook. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to over 15 additional InvestingPro Tips for Microchip Technology, aiding in making more informed investment decisions.
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