On Friday, Citi analyst Andrew Gardiner revised the price target for STMicroelectronics NV (STM:FP) (NYSE: STM), lowering it to €30.00 from the previous €36.00, while continuing to recommend the stock as a Buy. Gardiner noted that STMicroelectronics is struggling to identify the lowest point of its business cycle, facing challenges due to weakening end markets and earlier missteps in channel management compared to its competitors.
Gardiner's analysis suggests that the company's first-quarter guidance, combined with projections of a gradual recovery through 2025, has led to a reduction in revenue and earnings per share estimates for 2025 by 10% and 36%, respectively. Despite the downward adjustments, he believes that the stock is currently trading at a premium, as is typical at the cycle's trough.
The Citi analyst pointed out that the shares appear more attractively priced when considering the expected recovery in 2026, with price-to-earnings (P/E) ratios of 23x for 2025 and 11x for 2026. He expressed a belief that the company is nearing the bottom of the cycle and empathized with some investors' perspective that STMicroelectronics may have made the last cut to estimates.
While Gardiner maintains a Buy rating on the stock, he cautioned that near-term catalysts for the company seem to be lacking, despite an upcoming Capital Markets Day in three weeks. This event could provide investors with further insights into the company's strategic plans and outlook.
In other recent news, STMicroelectronics has been in focus following the release of its in-line financial results and lowered price target by Susquehanna. The company's fiscal year 2024 forecast was set at $13.27 billion, at the lower end of their previous range. STMicroelectronics also reported a decline in net revenues of 26.6% year-over-year in its Third Quarter 2024 Earnings Call, with the figure standing at $3.25 billion.
The company has announced a new initiative to accelerate wafer fabrication capacity to 300mm silicon and 200mm Silicon Carbide (SiC). This is part of a restructuring plan aimed at saving $800 million by 2027. STMicroelectronics also announced a strategic partnership with Qualcomm (NASDAQ:QCOM) for IoT solutions.
However, despite these developments, the company revised down its silicon carbide revenue expectations for 2024 to between $1.15 billion and $1.2 billion, and for 2025 from $2 billion to $1.8 billion due to market uncertainties.
InvestingPro Insights
Recent InvestingPro data provides additional context to Citi analyst Andrew Gardiner's assessment of STMicroelectronics. The company's P/E ratio stands at 11.66, aligning closely with Gardiner's projected 2026 P/E of 11x. This suggests that the market may already be pricing in some of the expected recovery.
InvestingPro Tips highlight that STM is trading near its 52-week low, with the stock taking a significant hit over the last six months. This is reflected in the company's YTD price total return of -45.55% as of the latest data. Despite these challenges, STM remains profitable over the last twelve months, with a revenue of $15.41 billion.
Investors should note that analysts anticipate a sales decline in the current year, which corroborates Gardiner's reduced estimates. However, STM's strong balance sheet, with more cash than debt, may provide some stability during this cyclical downturn.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for STMicroelectronics, providing a deeper understanding of the company's financial health and market position.
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