Buy Rating Affirmed for Microchip Technology Inc. on Strong Growth and Profitability Outlook

Microchip (MCHP) has received a new Buy rating, initiated by Evercore ISI analyst, Mark Lipacis.

Mark Lipacis has given his Buy rating due to a combination of factors that indicate a strong growth and profitability outlook for Microchip Technology Inc. (MCHP). He perceives MCHP as playing a significant role in the rapidly expanding Internet of Things (IoT) market, which is projected to reach tens of billions of units. Lipacis forecasts that MCHP’s operating margins will expand by an impressive 1000 basis points over the next decade. Furthermore, there’s an expectation for a re-rating of MCHP’s relative Price-to-Earnings (P/E) ratio compared to the S&P 500, from its 10-year average of 0.89x to 1.0x, driven by organic growth, strategic deleveraging, and a focus on returning capital to shareholders.

The financial outlook is bolstered by both secular and cyclical cases. From a secular perspective, MCHP is set to benefit from industry consolidation, leading to higher margins, free cash flow (FCF), and capital returns. On the cyclical front, Lipacis anticipates a reversal of the stock’s underperformance within three months, projecting outperformance relative to the S&P 500 through 2025 with a potential average relative gain of 55%. The projection of a 32% year-over-year increase in FCF per share in 2025, coupled with an expected 100% return of FCF by the first quarter of 2025, further underscores MCHP’s potential as a compelling capital return story. Additionally, Lipacis forecasts significant deleveraging that will likely accelerate capital return, with net leverage ratios decreasing substantially by the end of 2025.

In another report released today, Stifel Nicolaus also maintained a Buy rating on the stock with a $98.00 price target.

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Microchip (MCHP) Company Description:

Founded in 1989, Arizona-based Microchip Technology, Inc. is a leading provider of smart, connected and secure embedded control solutions. The company’s solutions serve more than 120,000 customers across the industrial, automotive, consumer, aerospace and defense, communications and computing markets.