Microchip Technology Is Attractive
The wide-moat firm's post-earnings sell-off tied to near-term revenue deceleration is providing an attractive entry point for long-term investors.
We continue to see an attractive margin of safety for investors in wide-moat
Microchip will host an Investor Day on Thursday and we wouldn’t be surprised if the company were to update its long-term financial targets at the event. Microchip’s existing long-term adjusted operating margin target of 40% is clearly within reach, as higher sales levels and synergies from recent acquisitions of Atmel and Micrel have lifted adjusted operating margins from the low 30% range to 39% in the December quarter. We still model some modest operating leverage from here to the 42% range by fiscal 2022. We are also not purely counting on revenue growth for such leverage, as our midcycle revenue forecasts call for 6% organic growth, slightly short of the firm’s target.
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