UPDATE: Longbow Research Upgrades Microchip Technology (MCHP) to Buy
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Longbow Research analyst Shawn Harrison upgraded Microchip Technology (NASDAQ: MCHP) from Neutral to Buy with a price target of $188.00.
The analyst comments "MCHP recently raised its LT GM and EBIT margin targets to 65% and 42%, but the Street is not forecasting MCHP reaching those levels until March, 2023. Given the favorable industry environment, we believe MCHP can achieve new targets a year sooner. MCHP sounds fairly ambitious on raising its internal assembly/testing capacity to 60%/70% from 55/57% as soon as possible, and as capacity is added at the existing facilities it will 1) likely to address bottlenecks, therefore, improving productivity and 2) be cheaper for MCHP vs using external capacity - therefore driving an upward pressure on incremental gross margin. In the last 4 years, MCHP has delivered an avg incremental gross margin of 75%, including +80% in growth years (FY18 and FY21). Yet the Street is forecasting only 73.4%. Additionally, higher semi prices will drive incremental op leverage in the model. We can see a scenario where MCHP EBIT margins even overshoot the 42% target in late FY22 or early FY23 when supply loosens and volume accelerates. For comparison, the Street forecasts EBIT margin at 40% for 2HFY22 and opex at 23.5%, ahead of MCHP target of 23%."
Shares of Microchip Technology closed at $155.11 yesterday.
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