Market Overview

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

Share:
Microchip Technology's 'Reasonable Valuation' Prompts Goldman Sachs Upgrade
Related MCHP
Jim Cramer Shares His Thoughts On Blackstone, Tellurian And More
Earnings Scheduled For November 7, 2018

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
Dec 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Nov 2018BMO CapitalInitiates Coverage OnOutperform
Nov 2018JefferiesMaintainsBuyBuy

View More Analyst Ratings for MCHP
View the Latest Analyst Ratings

Posted-In: Embedded Goldman Sachs Mark Delaney MCUAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (MCHP + MSCC)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
MDRXKeyBancUpgrades0.0
ANETNomuraUpgrades260.0
CNPRBC CapitalUpgrades34.0
FISVOppenheimerUpgrades88.0
FNDUBSUpgrades37.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

El Pollo Loco Q4 Earnings Preview

Cytori Therapeutics Q4 Earnings Preview