Infineon Upgraded At Bernstein: Investors Not Accurately Accounting For Margin Expansion

In a report published Wednesday, Bernstein analyst Pierre Ferragu upgraded the rating on

from Market Perform to Outperform, while raising the price target from €11 to €14. The analyst believes that the stock could see upside when the company's "unique potential" is better understood by investors, margin expansion begins and the capex intensity drops. "Looking at Infineon from a very "traditional" perspective, the stock appears unattractive today," Ferragu stated, adding that the recent share price does not reflect a long-term perspective that takes into account the company's ability to expand its margins and reduce capex. The analyst therefore believes that the stock is undervalued. According to the Bernstein report, "We believe it is appropriate to compare Infineon to high-quality industrial names with a similar topline growth trajectory and strong market position… Infineon appears even more undervalued when comparing to this peer set." In addition, the analyst believes that by 2020, Infineon would expand its margins by 5-6 points, compared to its peers. "If the company were to keep stable margins, pricing pressure on peers would drive them to negative margins. Assuming peers maintain their current mid-single digit margin profile implies Infineon could get to above 20 percent margins," Ferragu added.