The long-term growth of the semiconductor industry is predicted to be driven by technological advances. Semiconductor company STMicroelectronics NV (STM) delivered solid first-quarter results. Is the stock a buy now? Read on to find out….
The semiconductor industry is not completely immune to economic headwinds. However, the increasing consumption of consumer electronics devices coupled with the emergence of advanced technologies that require advanced memory chips could provide better opportunities for market development.
With that in mind, let’s figure out if global semiconductor product Designer, manufacturer and seller STMicroelectronics NV (STM), could be an ideal portfolio addition.
STM is headquartered in Geneva, Switzerland a leading global semiconductor manufacturer serving customers across the spectrum of electronic applications. The company introduced the second generation of its STM32 MPUs (microprocessors)comes with a new architecture and increases performance and security for applications at the industrial and IoT edge.
In addition, STM updated its outlook due to better than expected quarterly results. For the second fiscal quarter ended July 1, 2023, STM expects net sales of $4.28 billion, up 0.8% sequentially (up or down 350 basis points). Likewise, STM expects a gross margin of 49% (plus or minus 200 basis points).
The stock is up 13.6% over the past six months and 2.5% intraday to close the last trading session at $43.54. Wall Street analysts expect the stock to reach $63 in the next 12 months, indicating potential Upside potential of 44.7%.
Here are the factors that could have an impact STM‘s performance in the coming months:
Robust financial data
For the fiscal first quarter ended April 1, 2023, STM’s net income increased 19.8% year over year to $4.25 billion. while operating income rose 36.9% year over year to $1.20 billion.
For the same quarter, net income attributable to parent company shareholders increased 39.8% year over year to $1.04 billion. Earnings per share attributable to parent company shareholders was $1.10 per share, up 39.2% year over year.
Additionally, STM’s free cash flow for the same quarter was $206 million, up 151.2% year over year. The Company’s total working capital as of April 1, 2023 was $10.36 billion compared to $7.98 billion as of April 2, 2022.
Discounted Valuation
Regarding forward EV/EBITDA, STM is trading at 6.35x, 53.2% lower than the industry average of 13.58x. It’s forward EV/Sales and price-to-sales multiples of 2.18 and 2.27 are 18.3% and 12.7% lower, respectively, than industry averages of 2.67 and 2.60, respectively.
Impressive profitability
STM’s trailing 12-month net profit margin of 27.45% is well above the industry average of 2.39%. Likewise, trailing-12-month ROCE, ROTC, and ROTA of 39.22%, 21.22%, and 21.79% are well above industry averages of 1.04%, 2.24%, and 0.36%, respectively.
Attractive dividend
The company announced this an annual dividend of $0.24 per outstanding common share of the Company, payable to shareholders in quarterly installments of $0.06 each during the second, third and fourth quarters of 2023 and the first quarter of 2024.
The annual dividend represents a yield of 0.56% at the current share price. The four-year average dividend yield is 0.72%. The payout ratio is 5.33%.
Favorable analyst estimates
Consensus EPS estimates of $1.08 for the second fiscal quarter (ended June 2023) and $4.21 for the current year (ended December 2023) indicate increases of 16.9% and 0, respectively .6% compared to the previous year.
Likewise, the consensus revenue estimates for the same periods of $4.28 billion and $17.37 billion reflect year-over-year improvements of 11.6% and 7.7%, respectively. Additionally, STM has beaten consensus earnings per share and revenue forecasts for all of the last four quarters, which is impressive.
POWR ratings reflect promising prospects
It is no surprise that STM has an overall rating of A, which in our case corresponds to a strong buy POWR ratings System. The POWR ratings are calculated considering 118 different factors, with each factor being optimally weighted.
Our proprietary rating system also ranks each stock across eight different categories. STM has an A grade for value, consistent with its discounted rating.
Additionally, the stock is rated B for quality, consistent with its high profitability. The positive analyst assessments also justify the grade “B” for the mood.
STM is ranked #4 in 91 stock Semiconductor and wireless chip Industry.
Beyond the above, to see the STM’s additional POWR ratings for Momentum, Growth and Stability, Click here.
bottom line
The emergence of advanced technologies such as artificial intelligence (AI), machine learning (ML) and the Internet of Things (IoT) has increased the demand for highly functional chips. Consequently, the global semiconductor market is expected to reach $1.39 trillion by 2029, a growth rate of a CAGR of 12.2%.
Along with significant industry tailwinds, STM’s strong financial performance, robust profitability and dividend payouts could provide its shareholders with a stable return in a volatile economic scenario. As such, this stock could be a worthwhile portfolio addition right now.
How works STMicroelectronics NV (STM) Measure yourself against your competitors?
While STM has an A rating, which is Strong Buy, also consider these other semiconductor and wireless chip industry stocks: SUMCO Corporation (SUOPY), Renesas Electronics Corporation (RNECF) and Infineon Technologies AG ADR (IFNNY), which also have an A rating (strong buy).
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STM shares traded at $44.34 a share on Thursday morning, up $0.80 (+1.84%). Year-to-date, STM is up 24.79%, while the benchmark S&P 500 index is up 9.59% over the same period.
About the Author: Sristi Suman Jayaswal
The dynamics of the stock market caught Sristi’s interest while she was in school, which led her to become a financial journalist. Their preferred strategy is to invest in undervalued stocks with solid long-term growth prospects. After earning her master’s degree in accounting and finance, Sristi hopes to deepen her investment research experience and better guide investors.
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