Morgan Stanley downgraded STMicroelectronics NV STM from Equal-weight to Underweight in a report issued Monday. The price target for the French shares was lowered from €5.60 to €4.60.
Analyst Francois A. Meunier noted that the “shares are already reflecting a deceleration in demand but with Microchip MCHP calling for an industry- wide correction, we believe that STM is more exposed than the sector average and we find 90 percent downside to consensus estimates for 2015.”
Amid the reports observations, Meunier mentioned that “STMicroelectronics is in the middle of a restructuring programme and it is not exposed to wireless any more - as a result, we believe that the downside to EBIT margins is more limited than in the 2009-2013 timeframe when margins decreased to -9 percent in 2009 and -8 percent in 2012.”
Meunier also thought that the “cycle, inventory management and operating leverage will bite and reduce EBIT to $43m - this compares to $536m in the consensus for FY2015.”
The major risks to the firm’s price target included outperformance on gross margins and operational expense cuts.
The STMicroelectronics NV ADR recently traded at $6.74, down 3.09 percent.
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