Barclays downgrades STM to 'underweight' over China risks, Valuation

Published 01/22/2025, 08:26 PM
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Investing.com -- Barclays (LON:BARC) has downgraded STMicroelectronics NV (EPA:STMPA) to an “underweight” rating from its previous “equal weight” revision, citing heightened risks and valuation concerns. 

The analysts cited STM's exposure to the Chinese market (about 15% of its revenue) as a major concern. 

Given the escalating trade restrictions and China’s push for semiconductor self-sufficiency, Barclays warns that STM could face significant headwinds if access to the Chinese market diminishes. 

The report also raises doubts about STM’s ability to meet its medium-term growth targets without robust contributions from its China operations.

Additionally, the report points to STM’s high channel inventory in the industrial sector, exposure to the silicon carbide market, and limited traction in power applications for AI servers. 

 These factors, coupled with subdued demand in the automotive and industrial segments, are expected to slow the pace of recovery for STM compared to its peers. 

The analysts believe these issues create a less favorable outlook for the company, particularly in the near term.

Barclays has revised STM’s price target downward from €25 to €20, employing a reduced 2026 estimated price-to-earnings multiple of 12x. 

The firm argues that STM’s current valuation does not adequately reflect these mounting risks, especially as it continues to trade at a discount to its peers. 

The downgrade comes ahead of STM’s fiscal year-end results, scheduled for January 30, which are anticipated to reveal weaker-than-expected guidance for the first quarter of 2025.

Barclays also identifies potential upside risks, such as a faster-than-expected global semiconductor recovery, successful implementation of STM's China-focused strategy, or renewed confidence in its long-term growth targets. However, these scenarios appear less probable in the current market conditions.

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