Analyst Note| Brian Colello, CPA |
Narrow-moat STMicroelectronics', or ST's, 2022 capital markets day stunned us, as the firm outlined bold "ambitions" for its 2025-2027 financial performance that were well above the tail end of our prior five-year projections. We raise our fair value estimate to $53 from $47 (to EUR 51 from EUR 45) as we are a bit more optimistic about gross margin expansion as the firm provided more details into its product mix and manufacturing expansion plans, which we think are sustainable. In turn, we think there is an attractive margin of safety for investors today. However, our model assumes ST will reach its revenue ambition in 2027 but will fail to hit any of its profitability metrics even five years from now. We think ST would have to fire on all cylinders for the next three to five years with no bouts of macroeconomic headwinds or cyclical downturns to reach its targets, and we view significant upside to ST's shares if it can in fact deliver on its ambitions by 2025.