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Microchip Technology's 'Reasonable Valuation' Prompts Goldman Sachs Upgrade

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Microchip Technology's 'Reasonable Valuation' Prompts Goldman Sachs Upgrade

Shares of Microchip Technology Inc. (NASDAQ: MCHP) have gained 30 percent over the past year, and Goldman Sachs sees the case for a further 13-percent upside for three key reasons.

The Analyst

Goldman Sachs' Mark Delaney upgraded Microchip Technology's stock rating from Neutral to Buy with a price target boosted from $94 to $108.

The Thesis

The bullish case for the semiconductor company's stock is threefold, Delaney said in the upgrade note.

  • The company's capital allocation strategy is now viewed positively, as the recently passed tax reform offers a new flexibility to repurchase stock in addition to seeking out M&A deals.
  • Microchip's stock is trading at a "reasonable valuation" at around 17x the next 12 months' non-GAAP Street EPS, which is merely in-line with the stock's historical median over the past five years, the analyst said. The stock's P/E multiple has expanded at a slower rate than its peers over the past year and should start catching up, as the company's record backlog should support top-line growth through at least the June quarter, Delaney said. 
  • Microchip Technology's exposure to the 8-bit MCU market was a prior concern, the analyst said. But a 2017 survey of over 1,200 engineers in the embedded industry by EETimes/Embedded.com found the number of engineers planning to adopt 8-bit MCUs increased after years of declining demand.

The analyst's new assumptions on Microchip Technology's stock do not factor in the pending acquisition of Microsemi Corporation (NASDAQ: MSCC) because a "range of outcomes exists beyond our scenario analysis," Delaney said. 

Price Action

Shares of Microchip Technology were up 1.8 percent in premarket trading Thursday. 

Related Links:

Microchip Technology Notches Upgrade After Microsemi Purchase

A Bidding War For Microsemi Is 'Unlikely,' KeyBanc Says

Photo courtesy of Microchip Technology.

Latest Ratings for MCHP

DateFirmActionFromTo
Jan 2021Raymond JamesMaintainsStrong Buy
Jan 2021NeedhamMaintainsBuy
Jan 2021KeyBancMaintainsOverweight

View More Analyst Ratings for MCHP
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