Morgan Stanley downgraded STMicroelectronics (STM, Financials) to Underweight from Equal-weight, citing expected challenges in the automotive market and subdued overall sales growth through 2025.
From $37.28 the investment firm cut its price estimate on STMicroelectronics to $21.30. Morgan Stanley analysts, including Lee Simpson, led the downgrading by pointing to declining automobile demand and ongoing inventory corrections as main causes for their changed perspective.
According to Morgan Stanley's analysis, changes will probably be needed since projections for the automobile industry are somewhat high. From their earlier projection of a 12% gain, analysts are expecting a 6% drop in automobile revenue for fiscal year 2025—a negative revision. Driven by demand from customers like Tesla (TSLA, Financials), the company's silicon carbide sales should help to somewhat offset headwinds in the automotive industry, although the gains are not likely to totally offset the more general difficulties.
With gross margins expected below 40%, STMicroelectronics recently offered conservative advice for the fourth and first quarters since its financials are still being affected by slow car sector performance and inventory adjustments. The corporation has said that problems with inventory control might take one to two quarters to resolve.
Furthermore, Morgan Stanley underlined that over-investment in past cycles could result in higher depreciation costs in fiscal years 2025-2026, therefore impeding any significant margin recovery.
At STMicroelectronics' forthcoming investor day, the investment company expects that attendees will pay particular attention to discussion on pricing, new product introductions, cost restructuring, and long-term ambitions. The analysts have changed their FY25 projections downward to better reflect their assessment of a difficult future for the automobile sector and general corporate performance.
