STMicroelectronics "Cycle & Structural Growth Intact. Buy." (Buy) Bouvignies

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STMicroelectronics "Cycle & Structural Growth Intact. Buy." (Buy) Bouvignies

40 4 1.33

previous estimate of $2.0bn. For 2027, we forecast combined revenues of 12/27E 3.25 3.16 -3 2.70

approximately $3.7bn (around 21% of revenue), compared with our prior estimate of 12/28E 4.52 4.63 2 3.73

$3.5bn. Put differently, these two growth vectors alone should account for more than

Francois-Xavier Bouvignies50% of the company's incremental revenue growth over the next two years.

Analyst

Importantly, we believe both businesses carry gross margins meaningfully above the francois.bouvignies@ubs.com

corporate average, providing an additional profitability tailwind. +44-20-7568 7105

Harry Blaiklock, CFA3) Gross Margin Expansion Remains a Matter of Timing

Management highlighted that restructuring costs and underutilisation charges will harry.blaiklock@ubs.com

continue to weigh on Q4 gross margins, delaying the recovery by a quarter or two vs our +44-20-7568 5385

expectations. However, we view this as a timing issue rather than a change to the

longer-term outlook, and therefore leave our 2028 margin forecasts broadly

unchanged. As cyclical demand recovers and higher-margin growth drivers become a

larger part of the mix, we continue to expect gross margins to reach >45% by 2028E (vs.

c.36-37% in 2026), implying 70-75% incremental gross-margin drop-through, broadly

in line with peers.

Valuation: €80 DCF-based price target (WACC 9%, g 2%)

We leave our EPS broadly unchanged and therefore reiterate our PT of €80/share. We sit

c20% above EPS cons 27 pre results. STM trades at 21x/14x P/E on 2027–28E, versus a

historical average of ~18x forward, while delivering ~>50% EPS CAGR over 2026–29E.

Highlights (US$m) 12/23 12/24 12/25 12/26E 12/27E 12/28E 12/29E 12/30E