STMicroelectronics NV (NYSE: STM) ADR
Quality Value Investing Research Report | Initial Coverage | March 2024
Summary:
STMicroelectronics is a Swiss mid-cap chipmaker with a highly diversified semiconductor portfolio.
Despite the company’s board of directors cutting the dividend rate due to soft near-term revenue and earnings outlooks, it buys back shares at value prices.
Senior executives are delivering double-digit returns on management supported by a solid balance sheet, which leads to a low enterprise downside risk rating.
QVI initiates its coverage of STMicroelectronics in the Expanded Real-Time Stock Picks in this inaugural research report.
Access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets when referencing this research report. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on March 26, 2024, and intended for illustration only.
The 45 holdings in the QVI Real-Time Stock Picks have collectively achieved alpha for 15 years by focusing research and analysis on a company’s current wealth and its share price’s present value. In other words, just the facts without unreliable predictive analysis typical of the buy side or the business modeling overkill of the sell side Wall Street analysts.
In this initial coverage QVI Research Report, we’ll examine the newest Expanded Real-Time Stock Picks information technology sector holding, STMicroelectronics NV, to see how it meets Quality Value Investing’s investment criteria based on our checklist analysis of the business’s current wealth and its stock’s present value.
STMicroelectronics: Company Current Wealth
To uncover the company’s current wealth, QVI defines the value proposition, measures returns on management, and assesses enterprise downside risks.
Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including its economic moat.
STMicroelectronics STM 0.00%↑ ADR (American Depository Receipts) is a Swiss dividend-paying mid-cap stock in the information technology sector’s semiconductors industry. STM was added to the QVI Real-Time Stock Picks on March 26, 2022, at an inception price of $42.97 a share.
STMicroelectronics NV, together with its subsidiaries, designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group, and Microcontrollers and Digital ICs Group segments.
The Automotive and Discrete Group segment offers automotive integrated circuits (ICs), and discrete and power transistor products.
The Analog, MEMS and Sensors Group segment provides industrial application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs); general purpose analog products; custom analog ICs; wireless charging solutions; galvanic isolated gate drivers; low and high voltage amplifiers, comparators, and current-sense amplifiers; MasterGaN, a solution that integrates a silicon driver and GaN power transistors in a single package; wireline and wireless connectivity ICs; touch screen controllers; micro-electro-mechanical systems [MEMS] products, including sensors or actuators; and optical sensing solutions.
The Microcontrollers and Digital ICs Group segment offers general-purpose and secure microcontrollers and radio frequency (RF) products. It also offers application-specific standard products for analog, digital, and mixed-signal applications.
In addition, the company provides assembly and other services. It sells its products through distributors and retailers, as well as through sales representatives. The company serves the automotive, industrial, personal electronics and communications equipment, and computers and peripherals markets.
STMicroelectronics NV was incorporated in 1987 and is headquartered in Geneva, Switzerland.
Economic Moat
Alpha-rich investors target companies with clear competitive advantages from their products or services. An investor can streamline an enterprise’s value proposition with an economic moat assignment of wide, narrow, or none.
For example, Morningstar assigns STMicroelectronics a narrow moat rating.
QVI’s value proposition elevator pitch for STMicroelectronics:
STMicroelectronics is one of the largest chipmakers in Europe, arguably holding the most diversified product portfolio in the semiconductor industry. Its soft outlook on revenue and earnings is near-term, providing a potential top-pick value opportunity in the tech sector.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit STMicroelectronics’ investor relations webpage and its most recent Form 20-F Annual Report submitted to the US Securities and Exchange Commission or SEC as a publicly traded company domiciled outside of the United States.
QVI’s value proposition rating for STMicroelectronics: Bullish.
Returns on Management
QVI Research Report’s returns on management or fundamentals section measures the performance strength of the company’s senior executives by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, STMicroelectronics’ trailing three-year annualized revenue growth was double-digits, outperforming the information technology sector’s +4.41% median growth. However, the company’s topline growth tempered to +7.18% for the most recently reported twelve months.
Farther down the income statement, STMicroelectronics’ three-year, high-double-digit net profit margin far outperformed the sector’s median net margin of +2.74%.
Returns on Equity and Invested Capital
STMicroelectronics’ senior management produced a three-year double-digit return on equity or ROE above QVI’s targeted threshold and well ahead of the sector’s median ROE of +2.91%.
Stock buyback programs often elevate ROE. For example, STMicroelectronics completed a repurchase of 165,237 shares between March 18 and March 20, 2024, at an average price of US $43.90 per share, amounting to a total expenditure of US $7.25 million. The valuation multiples section of this report uncovers whether the company repurchased shares at value prices for its shareholders.
STMicroelectronics’ three-year return on invested capital, or ROIC, was well above QVI’s threshold and embarrassed the sector’s median ROIC of +2.34%. In addition, STMicroelectronics ROIC doubled its weighted average cost of capital, or WACC, of 10.68%, demonstrating that its senior executives are above-average capital allocators. (Source of WACC: GuruFocus)
QVI’s business fundamentals rating for STMicroelectronics: Bullish.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.