STMicro Earnings: Shares Still Undervalued Despite a Disappointing Forecast

Narrow-moat STMicroelectronics reported solid second-quarter results but provided investors with an ugly forecast for the remainder of 2024, as the company did not see enough of a bounceback in industrial or automotive chip demand as previously expected. We're disappointed with commentary around ST's industrial business, as the company's cyclical downturn appears to be both more severe, and more extended (or at least later in the cycle) than its peers. We, and ST, also underestimated the slowdown in ST's automotive chip business in 2024. We cut our fair value estimate to $52 from $60 (and to EUR 48 from EUR 56 for Euro shares). Still, ST's stock looks cheap to us as we anticipate a nice recovery in automotive demand in the long term, and we suspect that fears around future share loss in China in the long run are overdone.