On Monday, JPMorgan (NYSE:JPM) shifted its stance on STMicroelectronics NV (NYSE:STM:FP) (NYSE: STM), downgrading the stock from Overweight to Neutral. The investment firm also revised its price target for the semiconductor company from EUR35.00 to EUR30.00.
According to InvestingPro data, four analysts have recently revised their earnings estimates downward, though the stock appears undervalued based on Fair Value analysis.
The adjustment comes amid expectations of continued challenges in the automotive sector, which is a significant market for STMicroelectronics, constituting about 46% of its end market in the first nine months of 2024.
The company's revenue has already declined by 18.36% over the last twelve months, with InvestingPro data showing the stock has fallen over 40% in the past six months.
The analyst from JPMorgan pointed out that for STMicroelectronics to meet the current market expectations, which include a minor sales decline of 2.6% and a margin decrease of approximately 100 basis points in 2025, there would need to be a considerable improvement in its high-margin Microcontroller Unit (MCU) business. However, the absence of signs indicating a substantial recovery in the industrial market has led to a more cautious outlook.
JPMorgan's estimates for the company's EBIT in 2025 stand at $861 million, which is approximately 39% lower than the Bloomberg consensus. This discrepancy is attributed to the firm's more conservative expectations regarding the market's recovery after a weak first quarter and potential margin pressures that STMicroelectronics might face in 2025.
Despite these challenges, the company maintains strong fundamentals with a current ratio of 2.84 and trades at a P/E ratio of 11.62. Get deeper insights into STM's valuation and 10+ additional ProTips with an InvestingPro subscription.
The analyst concluded that while there may be grounds for a more constructive view on STMicroelectronics at some point in 2025, the current earnings estimates are likely to remain subdued. This is due to the significant downside risk to earnings, driven by JPMorgan's analysis of end-market inventory, prompting the downgrade and price target adjustment.
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