STMicro Is Firing on All Cylinders, but the Good Times Might Not Last Forever; Maintain $47 FVE

Narrow-moat STMicroelectronics reported sold first-quarter results and provided investors with a relatively upbeat second-quarter forecast while maintaining its full-year revenue outlook. Unlike its rival Texas Instruments, which provided downbeat second-quarter guidance April 26, ST does not anticipate a material destruction in demand associated with COVID-19 restrictions in China. ST might be one of the biggest beneficiaries of the global chip shortage, as healthy factory utilization and a very favorable pricing environment have enabled the firm to generate outstanding gross margin expansion. We raise our fair value estimate of European shares to EUR 45 from EUR 42 due solely to currency effects, while maintaining our $47 fair value for U.S. shares. Both sets of shares continue to appear undervalued to us.