Dutch-Swiss chipmaker STMicroelectronics (STM), like many semiconductor suppliers, is booming against the backdrop of strong global demand and increased supply constraints.
Tesla and Apple are customers
What's more, STMicroelectronics is a supplier to Tesla and Apple.
Over the past 12 months, ST's Paris-listed shares (STM.France) have risen by about 6%, and they are also listed in Milan and New York.
Although the stock has fallen by about 20% this year, the investment rationale remains strong.
Unlike its peers, it has a broader customer base spanning multiple industries, including automotive and industrial, which accounts for about 35% of sales in 2021. Many of these divisions are expanding, and this diversity also provides business stability.
With its orders full this year, ST's revenue is expected to grow 20 percent to between $14.8 billion and $15.3 billion.
While peers slowed capital spending investment during the pandemic, ST continued to spend and said in January that it would double its investment in chip manufacturing facilities from $1.8 billion in 2021 to about $3.5 billion in 2022. This will include a new plant in Italy.
Industry demand is strong
Strong demand in the semiconductor market will continue into 2023, with good inventory levels, continuing supply chain issues, intensified price changes, and high order levels.
In a March survey of 120 industry respondents by Berenberg, half of respondents believed supply chains/shortages would not ease in 2022, and half said things could get worse before improvement.
Customer demand has continued to grow since the beginning of 2021, with only a minority of respondents reporting a slight decline in order levels recently.
As of 2021, STM reported net sales of $12.7 billion, up from $10.2 billion in the previous year. By 2021, its net profit has nearly doubled, from $1.1 billion to $2 billion. STM will release its first-quarter earnings report later this month.
"In 2022, we will accelerate the execution of our strategy and continue to provide our customers with differentiated products for smart mobility, power and energy management, as well as the Internet of Things and 5G," said CEO Jean-Marc Chery, "and will invest heavily to seize new opportunities and prepare for future growth, while focusing our focus on sustainability." ”
Institutions are generally optimistic
Johannes Charler, an analyst at Deutsche Bank's research division, wrote in a note: "We maintain a bullish stance on the stock ... We believe the stock is in a unique position to provide cost-effective capacity for a tight market. He thinks the stock could rise by around 45% to 52 euros.
This efficient production keeps chip costs low while product prices climb due to tight supply, a combination that means the company is able to achieve a healthy gross margin of 45 percent.
Societe Generale analyst Aleksander Peterc said those profits should easily offset any increased input costs. He raised ST's 2022 revenue forecast to $15 billion, 2023 revenue forecast to $16.5 billion, and expected net profit to increase to $3.22 billion in 2023.
Based on expected earnings over the next 12 months, STmicroelectronics has a lower price-to-earnings ratio and a "high discount" valuation compared to its peers.
STmicroelectronics has a forward price-to-earnings ratio of 12.2 times, and while its valuation is on par with its peers, its competitor BROADCOM (AVG) has a forward price-to-earnings ratio of 16.95 times and ADI of 19.12 times.
