Analyst Note| Brian Colello, CPA |
Narrow-moat STMicro reported first-quarter results that were predictably below its original guidance in January because of the slowdown in automobile production and global semiconductor demand related to COVID-19. Yet the company doesn’t foresee a catastrophe in the second quarter and is anticipating a revenue recovery in the second half of the year, assuming both a recovery in manufacturing and also the company’s design wins in smartphones and other devices that are already secured. It’s hard to imagine that ST has a clear crystal ball at the moment, but the firm’s guidance of only a 1%-8% revenue decline in 2020 is relatively upbeat, in our view, given COVID-19 headwinds. Meanwhile, we think that most of the structural tailwinds behind ST’s chip businesses are firmly intact. We maintain our fair value estimates of EUR 27 and $30 per share for ST and continue to view shares as undervalued.