Microchip Technology (MCHP) Valuation Check After Raised Guidance and New Power Monitor Launches

Microchip Technology (MCHP) just raised its revenue and earnings guidance for the December quarter, signaling slightly better growth than it initially projected and tying that outlook to fresh, efficiency focused power monitor launches.

See our latest analysis for Microchip Technology.

The guidance bump and new low power monitors seem to have reignited interest, with a 7 day share price return of about 21 percent helping reverse some recent softness and suggesting that sentiment may be turning more constructive despite muted three year total shareholder returns.

If this kind of rebound has you wondering what else is setting up for a momentum shift in chips and automation, it is worth exploring high growth tech and AI stocks for more ideas.

With shares still trading at a discount to analyst targets but longer term returns lagging, are investors getting an overlooked value in a cyclical recovery, or is the latest guidance tweak already fully pricing in future growth?

Most Popular Narrative: 12.1% Undervalued

Compared to the last close at $64.72, the most followed narrative pegs Microchip Technology’s fair value higher, implying upside if its long term rebound plays out.

Operational leverage is set to improve as inventory write offs and factory underutilization charges decline, with management targeting a return to 65% non GAAP gross margins. As factory utilization ramps beginning in the December quarter and charges subside, incremental profits are expected to flow disproportionately to operating income and earnings.

Read the complete narrative.

Curious how a currently loss making chipmaker earns a premium style multiple in this narrative? The answer hides in aggressive margin rebuilding and surprisingly strong earnings power assumptions. Want to see exactly how those moving parts translate into that higher fair value? Read on.

Result: Fair Value of $73.64 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistently high inventories and elevated leverage could easily derail the margin rebuild, especially if automotive demand and broader end market recovery remain sluggish.

Find out about the key risks to this Microchip Technology narrative.

Another Angle on Value

While the popular narrative sees Microchip Technology as 12.1 percent undervalued, our cash flow based lens points the other way. The SWS DCF model estimates fair value at $57.08, which is below the $64.72 share price and suggests downside risk if growth and margins fall short.

Look into how the SWS DCF model arrives at its fair value.

Build Your Own Microchip Technology Narrative

If you see the story differently or want to stress test your own assumptions, it only takes a few minutes to build a personalized view: Do it your way.

A great starting point for your Microchip Technology research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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