STMicroelectronics Stays On Track As A Top Power Play

 

I’m glad to see STMicroelectronics (STM) (“STMicro”) getting more of its fair due in the market, as that hasn’t always been the case with this diversified chip company. Up almost 25% since my last update, doubling the return of the SOX in that time, but still lagging on a year-to-date basis, STMicro has benefited from another beat-and-raise quarter, as well as greater confidence about the security of the company’s book going into what will likely prove to be peak lead-times.

I’m beginning to see a stronger case for even more growth from STMicro over the next decade than I’d previously modeled, with STMicro leveraged not only to well-understood opportunities in autos, but also other industrial power markets, as well as 3D sensing, MCUs, and IoT. If STMicro can generate long-term growth more on the order of 9% over the long term, not impossible given underlying volume growth in markets like EVs, automation, and IoT, there is still worthwhile upside.

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STMicroelectronics Stays On Track As A Top Power Play

MCUs Can Be Unsung Heroes For STMicroelectronics's Long-Term Growth Story

While the stock has closed the year-to-date performance gap with the wider semiconductor group with a strong recent move, STMicroelectronics (STM) (“STMicro”) has been a bit frustrating for me, as a lot of the Street stays firmly in the “show me” camp with respect to the company’s growth and margin initiatives. I certainly understand some of the skepticism given past challenges, but I can also point to a host of other chip companies where the Street is much more willing, if not enthusiastic, to support the “it’s different this time” story.

That whinging aside, I like what I heard at the company’s recent “mini-Capital Markets Day”. I believe the company has a strong tailwind in its MCU business, and while a lot of attention has been given to the company’s leverage to auto electrification and ADAS and smartphone wins, I believe the MCU business is an overlooked growth and margin opportunity. I’m still expecting STMicro to generate mid-single-digit long-term revenue growth and double-digit FCF growth, with the company benefiting from an enhanced product mix (good for margins), improved scale, and growth opportunities in auto, industrial, and communication markets.

 

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MCUs Can Be Unsung Heroes For STMicroelectronics's Long-Term Growth Story