Is Microchip Tech the Next Value Stock?
ThinkstockMicrochip Technology Inc. (NASDAQ: MCHP) was tapped by Credit Suisse’s John Pitzer. The brokerage firm reinstated coverage with an Outperform rating and a $50 price target. This rating comes on the heels of Microchip’s acquisition of Micrel Inc. (NASDAQ: MCRL).…
Microchip Technology Inc. (NASDAQ: MCHP) was tapped by Credit Suisse’s John Pitzer. The brokerage firm reinstated coverage with an Outperform rating and a $50 price target. This rating comes on the heels of Microchip’s acquisition of Micrel Inc. (NASDAQ: MCRL).
Credit Suisse’s calendar 2015 and 2016 earnings per share (EPS) estimates are $2.61 and $3.00 versus consensus estimates of $2.87 and $3.16, respectively. The firm’s estimates include accretion from Micrel. In other terms, the firm initiated fiscal 2016 EPS of $2.60 and fiscal 2017 EPS of $3.16 versus consensus estimates of $2.89 and $3.15, respectively.
The brokerage firm said in its report:
We continue to see Microchip as one of the most diversified and well run companies in the Semi Industry with (100 consecutive quarters of profitability and positive free cash flow) – the company appears modestly under-valued relative to its peers. Specifically, the company is currently trading at calendar year 2016 P/E on SBC-EPS of 14.4x versus peers of 17.5x, EV/EBITDA of 8.1x versus peers of 11.9x, and a dividend yield of 3.3% versus peers of 2.7%.
While many are concerned that Microchip is significantly under-growing peers, June quarter results and September quarter guidance excluding M&A seem more in-line with, rather than below, peers. Additionally, the company has a strong track record of M&A to augment organic growth, notably 5 acquisitions in the last 5 years with the most recent acquisition of Micrel expected to add $0.25 to EPS over the next 1-2 years. Microchip does not represent structural growth but it does represent cyclical growth with M&A upside – Credit Suisse sees a long-term organic growth of 3% to 5%, augmented by 100 to 300 basis points of M&A upside – which is appealing as markets enter into the bottoming process of the current industry correction.
Shares of Microchip were down 1.3% at $42.25 on Tuesday afternoon. The stock has a consensus analyst price target of $53.50 and a 52-week trading range of $36.92 to $52.44.
ALSO READ: Short Sellers Increasing Bets in Semiconductors
Contact [email protected] for any questions or corrections.
Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
