Analyst Tristan Gerra from Robert W. Baird reiterated a Hold rating on STMicroelectronics (STM – Research Report) and keeping the price target at $23.00.
Tristan Gerra has given his Hold rating due to a combination of factors affecting STMicroelectronics. The company experienced a trough in automotive and industrial revenue in the first quarter, with a slight downward revision in car production forecasts and a more significant adjustment for electric vehicles. Despite a book-to-bill ratio above one, indicating more orders than shipments, distributor inventories remain high, and internal inventories have reached historical levels.
The company’s capital expenditure plans are focused on expanding 300mm capacity, which Gerra views as too high given the current demand outlook and limited visibility. Additionally, inventory days have surged to 167, a historical peak, which could hinder gross margin recovery in the latter half of the year and prolong under-utilization charges. While STMicroelectronics maintained its leading position in general-purpose microcontrollers, the financial results for the first quarter showed a slight earnings beat but a sequential revenue decline, with gross margins slightly below guidance. The second-quarter revenue guidance is above consensus, but the gross margin guidance falls short, incorporating significant underutilization charges. These mixed signals contribute to the Hold rating with a price target of $23.
In another report released today, Bank of America Securities also maintained a Hold rating on the stock with a $25.00 price target.