Truist Securities Downgrades Two Key Chip Stocks Amid Concerns
Truist Securities Downgrades Key Chip Stocks
Recently, analysts from Truist Securities have made headlines with their decision to downgrade two widely recognized chip stocks, Microchip Technology (NASDAQ: MCHP) and Analog Devices (NASDAQ: ADI). Their choice stems from valuation apprehensions and a tempered outlook for the entire semiconductor sector.
Microchip Technology's Rating Changes
The esteemed firm has adjusted its rating for Microchip Technology, moving it from a Buy to a Hold. Despite signs that the company's performance metrics may have reached their lowest point, with recovery estimates leaning towards a significant rebound by calendar year 2025, the stock itself is currently trading at rates that are significantly higher than historical averages based on its price-to-earnings (P/E) ratio.
In their analysis, Truist has redefined the price target for Microchip, revising it down to $80 from an earlier figure of $89. This adjustment aligns with a 24x multiple on the forecasted 2025 earnings per share (EPS) now projected at $3.33, a reduction from $3.69 previously anticipated.
Analysts’ Broader Semiconductor Insights
Alongside the individual assessments for both companies, analysts at Truist have also redefined their broader stance on the semiconductor sector, shifting from a 'Constructive' outlook to 'Neutral'. This change underscores a growing concern regarding the industry's revenue growth trajectory.
Truist's analysts pointed out that while revenue growth has reached its peak, it is now entering a phase of gradual decline. As such, they highlighted that stock investment returns have been quite solid thus far, but the potential for notable further gains may become more difficult moving forward.
Analog Devices Under Review
In a similar context, Analog Devices has not escaped the scrutiny of Truist, also receiving a downgrade from Buy to Hold. The analysts share concerns that, like Microchip, the fundamentals for Analog Devices appear to have stabilized at a low point, with expectations of a recovery on the horizon in 2025.
Despite optimistic views among some investors regarding potential growth, Truist asserts that market consensus is already betting on this recovery, with anticipated revenue growth of 17% year-over-year and an EPS increase of 31%. This projection suggests an average of 3% growth above seasonal averages over the next six quarters.
Price Target Adjustments for Analog Devices
As they adjust their views on Analog Devices, analysts have now set a new price target of $233, revising it down from $266. This new goal corresponds with a projected 28x multiple, reflecting a traditional discount of 7x compared to its analog counterparts within the industry. As the semiconductor landscape evolves, stakeholders in these firms will need to navigate these shifts carefully.
Frequently Asked Questions
What prompted the downgrades for MCHP and ADI?
Analysts at Truist downgraded both stocks due to valuation concerns and a revised outlook on the semiconductor sector.
When is the expected recovery for Microchip Technology?
The anticipated recovery for Microchip Technology is expected in calendar year 2025.
What is the new price target for Analog Devices?
The new price target for Analog Devices has been set at $233, down from $266.
Why did Truist change its outlook on the semiconductor sector?
Truist changed its outlook due to signs that industry revenue growth has peaked and may experience a gradual decline.
How do the new price targets relate to earnings projections?
The new price targets for both stocks are based on revised earnings projections, indicating potential challenges for investors moving forward.
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