Stifel Upgrades Microchip Technology on Favorable Risk-Reward

© Reuters.

By Sam Boughedda

Microchip Technology (NASDAQ:MCHP) was upgraded from Hold to Buy, and its price target was raised to $75 from $70 by Stifel analyst Tore Svanberg on Tuesday.

The analyst said that when "compared to the 2008 crisis, while MCHP remains a more defensive name having proved more resilient at -54% returns (vs.-60% large-cap returns on average), it appears that now MCHP is relatively underperforming in the current environment."

"As of 6/27/22, MCHP is trading at a 9.8x P/E on CY23 NG EPS (vs. 8.4x in 2020). This valuation multiple is nearing the lowest MCHP has traded in the past five years, with the lowest P/E multiple of 8.1x on 10/26/18," wrote Svanberg. "With the stock trading at an attractive P/E (while recognizing P/E is less of a reliable valuation metric when the macroeconomic environment is deteriorating), MCHP is getting very close to a NT trough. Meanwhile, the company’s growth prospects over the next 12 months appear resilient (as further discussed below) with CY23 EPS growing at +11.6% y/y, in our view."

The analyst continued, stating that their analysis of the two most recent downturns, including the 2008 Great Recession and 2020 COVID crisis, show its resilience.

"Coupled with MCHP’s increasingly favorable TTM FCF yield (7.21% as of 6/27/22’s closing price of $60.67), we believe the risk reward levels now appear favorable, especially as a more defensive focus in an increasingly uncertain macro environment given our views of MCHP’s resilience to financial downturns with strong backlog visibility."