Wednesday, January 23, 2019

STMicroelectronics Discounting A Truly Scary Semiconductor Cycle

I suppose that relative to the perpetually optimistic sell-side, I’m bearish on the semiconductor sector over the next 12-24 months, but I believe the share price of STMicroelectronics (STM) (or “STM”) is now pricing in a truly frightening level of pessimism about the near-term outlook for the industry. STM will certainly face stiff competition from companies like Infineon (OTCQX:IFNNY), ON Semiconductor (ON), Renesas (OTCPK:RNECY), Cypress (CY), and NXP Semiconductors (NXPI) in the coming years, but I believe the company’s strong position in MCU, power management, and sensing is being underrated now, not to mention the possibility for future volume-driven margin gains.

I think STMicroelectronics should be more fairly valued in the range of $17.50 to $21.50, a wide range to be sure, but one reflects the consistent gap between longer-term adjusted discounted free cash flow (which tends to produce lower targets) and the short-term multiples-based approaches that are typically more commonly-used on the Street.

Read the full article here:
STMicroelectronics Discounting A Truly Scary Semiconductor Cycle

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