STMicro Earnings: Cutting our Fair Value Estimate to $32 from $44 Based on a Troubling Start to 2025

Narrow-moat STMicroelectronics reported decent fourth-quarter results but provided investors with a disappointing forecast for the March quarter and indicated that it had little visibility into if and when business conditions would improve later this year. A slowdown in European manufacturing activity, on top of an already-severe inventory correction in key end markets, will likely drive ST into another year of revenue declines and gross margin erosion. The forecast reduces our confidence in the firm's ability to bounce all the way back to achieve its 2028 target of $18 billion of revenue. We are cutting our long-term revenue forecast rather dramatically and, in turn, reducing our fair value estimate to $32 from $44 (EUR 31 from EUR 40 for European shares). Given the 10% selloff to the $22 range, ST still appears undervalued, but we have less confidence in a massive business recovery in the near to medium term.