STMicroelectronics: Solid Q4 Results, Reiterate Buy

Summary

• The microchip giant doubles its profits and soars at Wall Street (> +7%). Equity research analysts positively welcome STM's results.
• STM closed its 2022 results with €16.13 billion in revenues, up by more than 25%. Net income was almost double the 2021 accounts.
• Already reaching its 2027 strategic plan. We are confident in a dividend increase. Our buy rating is then confirmed.

HJBC/iStock Editorial via Getty Images

Here at the Lab, we have a long-standing buy rating on STMicroelectronics (NYSE:STM). Since our last update called STM at full speed, the company is up by more than 26%, but overall, our performance (including the dividend payment) is approximately a plus 46% versus the S&P 500 return of just 6%. Despite the economic challenges of the last twelve months (Microsoft's warning was the last negative signal), the semiconductor sector seems very resilient. Having checked the Dutch ASML, our internal team was already confident, and Texas Instruments' results simply confirmed our positive expectations within the sector. Our STM investment case was supported by various reasons: 1) Soitec's new collaboration on silicon carbide substrates, 2) supportive regulatory framework on the EU Chips Act, 3) iPhone refresh cycle, 4) EV adoption, and more importantly 5) a discounted valuation (in detail, we describe STM multiples 'inviting') - at that time, the company was trading at 2023 11x EBIT, 2023 7x EBITDA, and 2023 P/E 13x.

Mare Evidence Lab's previous publication

Q4 and FY results

Previously, we titled our quarterly comment Broad-Based Beats and Doubles Profits And Beats Expectations in Q3 and HY respectively. STM Q4 performances were pretty in line with our indication and the company's results were above Wall Street analyst expectations and confirmed our positive long-term view on the semi-giant. In the last quarter of 2022, STM reported net revenues of $4.42 billion, up 24.4% year on year with a gross margin of 47.5% and an operating profit margin of 29.1%. Net profit reached $1.25 billion and again was up by 66.4% versus last year's quarter (Fig 1). This positive trend exceeds the FY guidance, but what is key to emphasize is the fact that the first 2023 three-month outlook, with a turnover of $4.2 billion and a gross margin of 48% is above the consensus estimates which stops at $3.8 billion and 45.2% respectively (Fig 2). In 2023, STM total net profit reached $3.96 billion (+98%) which is almost double the result obtained in 2021.

STM results in a Snap

STM Q1 outlook

Conclusion and Valuation

As for the full 2023, thanks to strong customer demand and increased manufacturing capacity, STM expects a turnover between $16.8 billion and $17.8 billion. During the Q&A session, the CEO declared that the group is already planning an investment of $4 billion in CAPEX to expand the 300-millimeter silicon wafer factories and silicon carbide manufacturing capacity. Here at the Lab, taking into account the guidance midpoint, we see the 2023 gross margin similar to the 2022 performance. During the conference call, the CFO specified that last year's gross margin equal to 47.3% benefited from the positive product mix and the price increase, while it was impacted by a certain increase in the costs of productive inputs. Our internal team is also implying a positive price MIX for 2023, and we confirm our buy rating suggesting a target price of €60 per share (STM remains a top pick in the European technology sector). In October, the Italian leading company ensured that its operating plants were completely saturated and that the company's order book already covered between six and eight quarters of production capacity. STM situation remains rosier than the rest of the sector thanks to industrial and auto exposure. The 2023 outlook is stronger than expected and the guidance for the year is very encouraging. The company is on track towards the targets of the 2025-2027 plan, just 12% away from revenues if we consider the upper part of the range on 2023 provided in the accounts. Our buy rating is then confirmed.

STM EPS and PE evolution

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Disclosure: I/we have a beneficial long position in the shares of STM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.