On Wednesday, Evercore ISI adjusted its price target for Microchip Technology (NASDAQ:MCHP), bringing it down to $95 from the previous $101, while keeping an Outperform rating on the stock. The firm's decision came in response to the company's December quarter outlook, which fell short of market expectations, with a reported 10% revenue shortfall and a 34% earnings per share (EPS) miss compared to consensus estimates.
Microchip Technology experienced a 5% decline in aftermarket trading following the release of its December quarter guidance. The company cited several factors for its performance, including high interest rates, elevated channel inventory, short lead times, and an uncertain business climate. These conditions have led to reduced consumption, continued inventory destocking, and lower target inventory levels across the supply chain.
According to Evercore ISI, as of the September 24 quarter, Microchip Technology is shipping at a rate 46% below consumption levels, which has resulted in unprecedented low visibility into future performance. Despite the reduction in the price target and the challenges faced, the firm maintains a positive outlook for the company. The analyst from Evercore ISI remarked, "We're Buyers Considering MCHP Shipping 46% Below Consumption," indicating a belief that the current challenges may present a buying opportunity.
The firm sees the company's management guidance and commentary as conservative, potentially setting the stage for positive surprises in the year 2025. While adjusting the price target to $95, Evercore ISI reiterated its Outperform rating, suggesting that the risk/reward profile for Microchip Technology is tilted favorably to the upside moving forward.
In other recent news, Microchip Technology reported a decrease in Q2 fiscal 2025 net sales to $1.241 billion, a 6.4% drop from the previous quarter, alongside a robust non-GAAP net income of $289.9 million.
Despite inventory challenges, Raymond (NS:RYMD) James maintained a strong buy rating on the company, citing progress in the supply chain and robust gross margin performance. In contrast, Truist Securities downgraded Microchip's stock from Buy to Hold, while Mizuho (NYSE:MFG) Securities maintained an Outperform rating despite lowered revenue forecasts.
Microchip Technology also declared a quarterly cash dividend of 45.5 cents per share, continuing its history of consistent dividend payments. Adding to recent developments, the company introduced the PIC64HX family of microprocessors for the edge computing market, expanded its Wi-Fi product line with 20 new products, and launched the 101765 family of Voltage-Controlled SAW Oscillators for the aerospace and defense markets.
InvestingPro Insights
Recent InvestingPro data provides additional context to Microchip Technology's current situation. Despite the challenges highlighted in the article, the company maintains a significant market presence with a market capitalization of $40.29 billion. Interestingly, Microchip's P/E ratio stands at 29.34, which aligns with the high revenue valuation multiple mentioned in one of the InvestingPro Tips.
Two particularly relevant InvestingPro Tips shed light on the company's current position. Firstly, Microchip Technology is "Trading near 52-week low," which corroborates the stock's recent decline mentioned in the article. Secondly, the company "Has maintained dividend payments for 23 consecutive years," demonstrating long-term financial stability despite short-term challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips that could provide valuable insights into Microchip Technology's financial health and market position.
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