On Wednesday, Kepler Cheuvreux adjusted its stance on Melexis NV (MELE:BB) (OTC: MLXSF), shifting from a "Buy" to a "Hold" rating. The firm also reduced the price target for the stock to €80.00 from the previous €110.00. This significant change comes amid a broader reassessment of the industrial analog and automotive sectors.
The industrial analog markets have been undergoing substantial inventory adjustments throughout 2024, and although the automotive sector has shown some consistency, the outlook is becoming more cautious. Over the past year, inventory levels have been trimmed as supply chains stabilized. However, projections suggest further reductions are on the horizon due to a combination of factors including softening demand, aggressive pricing, and discounts.
China's role as a catalyst for growth is also under scrutiny. Despite various incentives, consumer interest has not picked up as expected, leading to postponed purchases and a deceleration in vehicle production. The favorable conditions of the Covid era, characterized by extended lead times, long-term agreements (LTAs), and supportive pricing, are now shifting in the opposite direction.
Reflecting these market conditions, Kepler Cheuvreux has revised its earnings per share (EPS) forecasts for Melexis for the years 2025-26. The firm anticipates a reduction in EPS by 16-19%, attributing this adjustment to the anticipated decrease in pricing power at this point in the business cycle, scaled-back vehicle production, and a slowdown in the stocking of newer technological products.
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