STM Stock Study (6-18-24)

I recently did a stock study on STMicroelectronics N.V. (STM) with a closing price of $43.10. The previous study is here.

Value Line writes:

     > STMicroelectronics N.V. is a large multinational firm that designs,
     > develops, and manufactures semiconductors. Active markets include
     > telecom, networking, autos, industrial products, and consumer
     > devices. Offers thousands of products to over 100,000 customers.

Since 2017, this large-size company has grown sales and earnings at annualized rates of 13.3% and 31.4%, respectively [’13-’16 EPS excluded due to negative and/or small fractional values that artificially boost growth rate]. Lines are generally up, straight, and narrowing except for an EPS dip in ’19.

Over the past decade, PTPM trails peer and industry averages despite increasing from 1.4% (’14) to 27.6% (’23) with a last-5-year mean of 17.7%. ROE also trails peer and industry averages despite rallying from 2.3% (’14) to 26.1% (’23) with a last-5-year mean of 22.7%. Debt-to-Capital is lower than peer and industry averages while falling from 26.5% (’14) to 15.9% (’23) with a last-5-year average of 21.1%.

M* reports Quick Ratio of 2.5 and Interest Coverage an eye-popping 63.7. M* also rates the company “Standard” for Capital Allocation and “Narrow” for Economic Moat. Value Line grades the company B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 16.9% contraction and 12.3% growth for ’24 and ’25, respectively (based on 9 analysts).
• Zacks projects YOY 17.0% contraction and 11.6% growth for ’24 and ’25, respectively (2 analysts).
• Value Line projects 3.0% annualized growth from ’23-’28.
• CFRA projects 16.3% YOY contraction and 0.8% growth per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year annualized ACE of 1.8% growth while projecting 5.0% long-term growth in its analyst note.

I am forecasting less than both long-term estimates at 2.0% per year.

With regard to EPS growth:

• MarketWatch projects 3.1% per year contraction and growth for ’23-’25 and ’23-’26, respectively (based on 26 analysts).
• Nasdaq.com projects growth of 38.5% YOY and 31.3% per year for ’25 and ’24-’26 [4/4/1 analyst(s) for ’24/’25/’26].
• Seeking Alpha projects 4-year annualized growth of 10.5%.
• YF projects YOY 51.8% contraction and 38.1% growth for ’24 and ’25 (9) along with 5-year contraction of 1.3%/year.
• Zacks projects YOY 52.2% contraction and 38.5% growth for ’24 and ’25 (4) along with 5-year growth of 5.0%/year.
• Value Line projects annualized growth of 1.1% (20.9%) from ’23 (’24) – ’28.
• CFRA projects contraction of 47.5% YOY and 8.9% per year for ’24 and ’23-’25, along with a 3-year CAGR of -4.0%.
• M* projects long-term annualized growth of 1.1%.

My 1.0% per year forecast is toward the bottom of the long-term-estimate range (mean of five: 3.3%). Initial value is ’23 EPS of $4.46/share.

My Forecast High P/E is 16.0. Over the past decade, high P/E falls from 71.4 (’14) to 12.5 (’23) with a last-5-year mean of 21.7 and a last-5-year-mean average P/E of 16.1. I am toward the lower end of the range [only ’22 (12.3) and ’23 are less].

My Forecast Low P/E is 7.5. Over the past decade, low P/E falls from 44.8 (’14) to 7.9 (’23) with a last-5-year average of 10.6. I am forecasting toward the bottom of the range [only ’22 (6.8) is less].

My Low Stock Price Forecast (LSPF) of $33.50 is default given the initial value mentioned above. This is 22.3% less than the previous close and 9.9% less than the 52-week low.

Over the last decade, Payout Ratio (PR) has decreased from 214% (’14) to 5.4% (’23) with a last-5-year mean of 11.6%. I am forecasting below the entire range at 5.0%.

These inputs land STM in the BUY zone with an U/D ratio of 3.3. Total Annualized Return (TAR) is 12.0%.

PAR (using Forecast Average—not High—P/E) is 5.5%, which is less than I seek for a large company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 23 studies (my study and 10 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.4%, 4.0%, 17.5, 10.1, and 11.6%. I am lower across the board. Value Line’s projected average annual P/E of 16.0 is higher than MS (13.8) and higher than mine (11.8).

MS high / low EPS are $5.34 / $4.18 vs. my $4.69 / $4.46 (per share). My high EPS is less due to a lower growth rate. Value Line projects $4.70/share for high EPS, which is very close to mine.

MS LSPF $34.60 implies Forecast Low P/E of 8.3: lower than the above-stated 10.1. MS LSPF is 18.0% less than default $4.18/share * 10.1 = $42.22, which results in more conservative zoning. MS LSPF is 3.3% greater than mine, however.

MOS in the study is robust. TAR (over 15.0% preferred) is much less than MS 17.1%. In addition (and MS small sample size aside), my inputs are near the bottom of or below estimate and historical ranges.

With regard to valuation, PEG is 4.1 and 10.9 per Zacks and my projected P/E, respectively: both significantly overvalued due to low EPS growth rates (denominator). Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.7.

U/D has STM a BUY under $43.90/share. The stock needs to approach $37.50 in order to meet the BI TAR criterion given a forecast high price of $75.