Text size
The company is known for its microcontrollers and makes other chips in common household items such as garage door openers and keyless locks.
Dreamstime
Stock in microcontroller maker
Microchip Technology
was higher Monday afternoon, after Morgan Stanley analyst Craig Hettenbach placed the equivalent of a Buy rating on the stock.
In a research note to clients, Hettenbach wrote that investors have been unnecessarily punishing Microchip (ticker: MCHP) stock because of the company’s volatile bookings and high debt. Hettenbach argued that negative sentiment has overshadowed the company’s fattening margins and diversification efforts following its acquisition of Microsemi.
Microchip shares were up 1.2% to $112.17, while the
Dow Jones Industrial Average
fell 0.9%. Hettenbach set a $131 target price from $109. The company’s stock has gained 7.5% this year, as the
PHLX Semiconductor
index rose 30%.
The $10.3 billion cash acquisition of Microsemi in 2018 is the source of the debt. Hettenbach said the company’s net debt of $9 billion compares with the median $700 million of companies in his coverage universe.
In the note, Hettenbach wrote that, although the timing of the Microsemi acquisition was unfortunate, the new business lines give Microchip Technology access to additional markets, and is the source of its improved margins over the past two years. Because the company is aggressively paying off the debt, it should improve the company’s margins and convince investors the stock should be trading at a higher multiple.
Of the sell-side analysts that cover Microchip, 21 rate the company a Buy and four have a Hold on the stock. The average target price is $120.77, which implies an upside of about 7% from midday trading Monday.
The $30 billion company is known for its microcontrollers and makes other chips in common household items such as garage door openers and keyless locks. Most of the company’s sales are from non-U.S. customers.
Write to Max A. Cherney at max.cherney@barrons.com
Gloss