AmTech Upgrades Microchip Tech. (MCHP) to Buy; $39 PT

June 20, 2008 12:39 PM EDT

American Technology Research upgrades Microchip Technology (Nasdaq: MCHP) from Neutral to Buy and raises its price target from $35 to $39.

The firm says "the stock's current price and dividend yield (4.1%) reflects an overly negative view of the MCU space and undervalues Microchip's high margin model and market share dominance.' AmTech believes its thesis remains intact as it sees "increasing penetration into markets such as auto/industrial and increased integration of analog/logic" as potential long-term catalysts.

AmTech calls Microchip's business model one of the most shareholder-friendly "in semis with aggressive buy-backs, a healthy dividend, and efforts to keep share-count under control. (March average share count down 9.5% Q/Q.)"

The firm believes near-term concerns related to sell-through to the China OEM and U.S. auto markets will be offset by "long-term fundamentals of increased MCU demand and integration in electronics systems..."

AmTech's $39 price target on Microchip is based on 20x its forward EPS estimate of $1.94, compared to its current valuation of 18.7x the firm's FY09 EPS estimate. With shares of Microchip trading just over $32 today, AmTech's price target represents a potential return of nearly 22%.

Microchip Technology Incorporated, together with its subsidiaries, engages in the development, manufacture, and sale of specialized semiconductor products for various embedded control applications.

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