Based in Geneva, Switzerland, STMicroelectronics N.V. (STM) is an electronics and semiconductor manufacturer that operates in the United States, Europe and internationally. The company reached a milestone last month in delivering the first game-changing Stellar SR6 MCUs for new-generation vehicles. As electric vehicle (EV) sales increase, the chip manufacturer’s leading-edge technologies should continue to see strong demand.
The company’s strategic collaborations and strong demand in all end markets have helped its stock gain 34% over the past year and 9.4% over the past nine months. STM’s year-over-year net sales of microcontrollers and digital ICs and automotive and discrete group sales increased 42.2% and 38.4%, respectively, in its last reported quarter.
Closing yesterday’s session at $36.68, STM is trading 14.7% below its 52-week high of $43.02. The company’s promising earnings growth potential should help the stock deliver solid returns in the coming months.
Here is what we think could shape STM’ performance in the coming months:
Solid Growth Estimates
Analysts expect STM’s EPS to increase 270% year-over-year to $0.37 in the current quarter, ended June 30, 2021. Consensus EPS estimates indicate a 46.7% increase in the current year and a 12.5% increase next year. STM also has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters.
The $2.89 billion consensus revenue estimate for the current quarter indicates a 38.4% improvement year-over-year. Also, its revenue is estimated to increase 19.4% in its fiscal year 2021 and 5.5% in 2022.
On July 7, STM and Qeexo announced the addition of STM’s machine-learning core sensors to Qeexo’s AutoML platform. This development should enable STM to cater to the increasing needs of application developers by delivering enhanced real-time edge computing. Also this month, Feig Electronic and STM delivered a contactless personalization system that will offer flexibility and cost-efficient logistics to high-tech product vendors.
Furthermore, STM partnered up with Orange, Sierra Wireless, LACROIX to launch IoT Continuum, which should accelerate the deployment of cellular IoT in Europe and speed up the digital transformation in areas of critical growth.
Increasing EV Penetration Could Boost Growth
STM recently started delivering its first Stellar SR6 automotive microcontrollers (MCUs) for the next generation of advanced vehicle electronics. These MCUs should enable the company to meet the needs of smart and connected vehicles that need greater safety critical applications. Moreover, the company will be providing its leading-edge semiconductor technologies to Arrival’s next-generation EVs. Thus, a rising EV penetration rate should position STM to witness greater demand for its broad-based semiconductor technology and boost its revenues.
STM’s net revenue increased 35.2% year-over-year to $3.02 billion in the first quarter ended April 3, 2021. The company’s operating margin rose 420 basis points from its 14.6% year-ago value, while its net income increased 89.6% year-over-year to $364 million. Under its Analog, MEMS and Sensors Group segment, STM’s revenue came in at $1.08 billion, up 27.1% versus the first quarter of 2020. Its gross profit rose 38.9% from its year-ago value to $1.18 billion, while its EPS increased 85.7% year-over-year to $0.39.
STM’s 14.2% trailing-12-month EBIT margin is 79.2% higher than the 7.9% industry average, Also, the company’s respective 11.6% and 16.3% trailing-12-month net income margin and ROE compare favorably with industry averages. Its 8.5% trailing-12-month ROA is 165.2% higher than the 3.2% industry average.
POWR Ratings Reflect Promising Outlook
STM has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. STM has a B Value Grade. This is consistent with the stock’s 21.30x P/E ratio, which is 21% lower than the 26.95x industry average.
Also, in terms of Growth Grade, STM has a B. The company’s strong financial performance is in sync with this grade.
In addition, it has a B grade for Quality. This is reflective of the company’s higher-than-industry net income margin.
Click here to see the additional POWR Ratings for STM (Sentiment, Stability, and Momentum).
The stock is ranked #6 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
The accelerating demand from the automotive and other leading customers across the spectrum of electronics applications for STM’s cutting-edge semiconductor technologies, and high hopes for its recently delivered MCU’s, make it a strong player in the chip industry. In fact, increased electric vehicle adoption should bolster its top-line growth further. So, we think it could be wise to bet on the stock now.
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STM shares rose $1.03 (+2.81%) in premarket trading Friday. Year-to-date, STM has declined -0.95%, versus a 16.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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