Guidance From STMicroelectronics Suggests A Stronger Second Half Than Many Expected
Jan. 25, 2019 2:12 PM ET |
About: STMicroelectronics NV (STM), Includes: IFNNY, ON, RNECY
Stephen Simpson, CFA
Summary
As expected, STMicroelectronics lowered guidance for the first quarter, but management seems confident that double-digit qoq growth will resume in the second half on new product ramps.
Auto content growth is a legitimate driver for STM, but overall auto unit volumes could still be at risk, as could smartphone unit volumes, as economic headwinds build in 2019.
STMicroelectronics shares still look undervalued after a strong positive reaction to fourth quarter earnings and first quarter guidance.
For better or worse, short-term stock price performance is mostly a game of expectations, and expectations going into this reporting cycle were for semiconductor companies to lower guidance for the first quarter. While Xilinx ( XLNX) was a notable exception, that expectation has held true conceptually, with Texas Instruments ( TXN), Intel ( INTC), and STMicroelectronics ( STM) all guiding down, but the magnitude of the revisions seem to be less severe than feared.
Specific to STM, I’m still bullish on these shares even after a double-digit pop post-earnings. The market is still not sold that the company’s cost structure and operating philosophy have really changed such that a downturn won’t hammer margins, and I believe that there is still room for the company to surprise. Although I’m a little concerned that management’s full-year targets for 2019 are aggressive and that the sector could see a second cut to numbers in three months, I like these shares below the high teens.
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