Is Microchip Technology (MCHP) Fairly Valued Following Strong Results And Softer Guidance?
Microchip Technology (MCHP) moved into focus after delivering quarterly sales of US$1.62b and net income of US$401.4m, alongside guidance that pointed to softer near term expectations and ongoing supply chain pressures.
Microchip Technology’s latest update landed in a rough patch for the stock, with the share price down 22.55% over the past week and 24.06% over 90 days, even though the 1-year total shareholder return is still positive at 13.16%. This suggests recent momentum has faded as investors reassess growth potential and near term risks around guidance and supply chain constraints.
Scan how Microchip Technology compares with other chips-focused opportunities that have been pre-filtered for balance sheet strength and fundamentals in our list of solid balance sheet and fundamentals (24 results) today.
After a week like this for Microchip Technology, the real fork in the road is clear. Has the pullback reset expectations enough to leave meaningful upside ahead, or has most of the easy value already been claimed?
Most Popular Narrative: 3% Undervalued
On the bearish analyst Narrative on Simply Wall St, Microchip Technology screens with a Fair Value of $62 against a last close of $60.33. This frames a modest discount and puts the recent share price slide into sharper context.
Although Microchip Technology is guiding to a 66% to 67% non GAAP gross margin on the back of temporary items such as one quarter of unusually strong 100% margin licensing revenue and a one time uplift from distributor inventory price write ups, these effects fade while foundry and OSAT input costs are already rising and underutilization charges of about $38.5 million still sit in cost of goods. This combination could cap further gross margin expansion and limit upside to earnings once these tailwinds reverse.
See why 5 investors see Microchip Technology as 3% undervalued.
Result: Fair Value of $62 (UNDERVALUED)
Still, several developments could flip that bearish Microchip Technology narrative. These include sustained strong bookings converting to higher net sales and unused internal fab capacity lifting operating margins.
Find out about the key risks to this Microchip Technology narrative.
Another View on Microchip Technology’s Valuation
The initial narrative leans on analyst fair value of US$62 per share, but the SWS DCF model points to a future cash flow value closer to US$69.58, with Microchip Technology trading about 13.3% below that at US$60.33. If both are using the same earnings path, which signal do you trust more?
Look into how the SWS DCF model arrives at its fair value.
Next Steps
Sentiment around Microchip Technology is clearly mixed, with both pressure points and bright spots in the story. Move quickly through the latest numbers, weigh the opposing arguments, then check the 3 key rewards and 2 important warning signs.
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