STMicroelectronics NV’s (NYSE: STM), stock fell over 15% yesterday after the company reported mixed earnings for Q2, and slashed its revenue forecasts again to 2024.
The company’s Q2 GAAP earnings per share of $0.38 beat expectations by $0.03 but revenue of $3.23bn missed the estimates by 40 million dollars, representing a decline of 25.4% from year to year.
The net cash generated by operating activities fell to $702 millions, down from the $1.31 billion recorded in the same period last year.
Net capex and cash flow were both lower than the year before.
Stock levels rose slightly, to $2.81billion. Days sales increased to 130 from 126 a year earlier.
As of June 30, 2024, the company’s net adjusted financial position was $2.80 billion.
STMicroelectronics is expecting net revenue of $3.25billion for Q3 and gross margins of 38%. This is lower than the market expectation of $3.55billion.
Forecasts for the full year have been reduced to an estimated range between $13.2 and $13.7 billion. This is down from estimates previously of $14 to $15 billion.
Experts’ opinions
Morgan Stanley, in response to STMicroelectronics’ weak earnings, revised its outlook and downgraded it from Overweight (a place of high weight) to Equal Weight and cut the price target from $48 to $35.
The analyst Lee Simpson pointed out that there was widespread weakness, especially in the automotive and industrial sectors, leading to the reduction in guidance.
This downgrade is a reflection of concerns about the limited visibility that company has and its continued weakness, including impacts on gross margins from product mix and deeper underutilization charges.
STMicroelectronics is a subject that has been discussed by other analysts. Goldman Sachs upgraded STMicroelectronics from Sell to Neutral, citing improved demand across multiple markets. The price target was set at $45.80.
Goldman Sachs analysts pointed out that EV adoption could have long-term advantages despite the near-term difficulties.
While some analysts are optimistic about the future of semiconductors, others have remained cautious due to current market conditions.
STMicroelectronics: Recent Developments
STMicroelectronics has received EU approval of EUR2 billion for Italian state assistance to build a new manufacturing facility for semiconductors in Sicily.
The facility forms part of an investment totaling EUR5 billion to manufacture Silicon Carbide Power Devices, with the aim to improve Europe’s supply chain for semiconductors and to reduce its dependence on imported products.
This facility will be operational in 2032 and contribute significantly to long-term company growth.
STMicroelectronics, despite the challenges it faces, continues to invest for growth and shareholder return.
The company announced that it had completed its $1.04-billion share buyback program, and that a $1.1-billion plan would be implemented over three years.
The actions taken by the management reflect their confidence in the future of the business despite current challenges.
STMicroelectronics net financial situation remains strong with total liquid assets of $6.29 Billion and total financial obligations of $3.09 Billion as of June 29 2024.
Basics and valuation
STMicroelectronics, fundamentally, is facing a challenging market. Revenues from the company’s key segments such as Analog, Power & Discrete and Microcontrollers have declined year over year.
Operating income decreased by 67.3%, to $375 millions. The operating margin dropped to 11.6% of 26.5% the previous year.
The decline in demand was primarily due to lower automotive and industrial production and increased unused capacity charges.
STMicroelectronics trades at a lower price than its competitors.
The company has strong long-term growth prospects, despite recent setbacks. These include areas like energy transformation, data centers, and microcontrollers.
Analysts claim that STMicroelectronics’ net cash and its ongoing capacity expansions and buybacks are a buffer against the current economic downturn.
Long-term support broken
STMicroelectronics stock, while already on a downward trend in the charts over time, has now broken through its support level of $34.6. This is a bad sign for bulls.
TradingView STM Chart
Investors who view this dip as an opportunity to buy must be cautious, given the overall bearish trend across all timeframes.
If the momentum is bearish, then the next support will be near the $29. Any long-term bullish position must be started with a $28.8 stop loss.
Bearish traders can take a position short on a small bounceback around $34 and set a stop-loss at $36.75. Profits can be booked above $29.
The post Morgan Stanley lowers STMicroelectronics stock after poor Q2 results: Sell or hold? This post may change as new information becomes available
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