Chip stocks that serve the auto industry are seeing a surprise pickup in demand, perking up analyst and investor interest in the group.
The improving fundamentals prompted Mizuho analyst Vijay Rakesh on Friday to raise his earnings estimates on Texas Instruments (ticker: TXN), Microchip Technology (MCHP), NXP Semiconductors (NXPI), ON Semiconductor (ON), Veoneer (VNE), and Autoliv (ALV). He has a Neutral rating on Texas Instruments, and Buy ratings on the rest of the group.
He also raised his target prices on all of the stocks in the group. For Texas Instruments, he goes to $165, from $127; for Microchip, $128, from $112; for NXP, $152, from $127; for On Semi, $30, from $25; and for Veoneer, $25, from $20. For Autoliv, he goes to $95, from $72.
“Our checks continue to show a strong auto/industrial recovery into Q4 and 2021,” Rakesh writes in a research note. “A significantly stronger-than-expected automotive rebound, led by China auto production tracking above pre-Covid levels, U.S. auto and truck production running at 100% utilization, and low dealer inventory, are all driving continued strength. We are also seeing improving cyclical industrial trends, with expansionary PMIs [purchasing managers’ indexes] in the September quarter in China, the U.S. and Europe.”
Rakesh says U.S. auto dealer inventory exiting September was down 36% from February. Used-car sales prices are up about 10% year-over-year, he notes, suggesting strong demand, and U.S. auto plants are running full out. He sees a strong demand rebound in 2021, with further gains in 2022.
Oppenheimer’s Rick Schafer, meanwhile, writes in a research note Friday that he thinks Texas Instruments will beat Wall Street estimates when the company report third quarter results on Tuesday.
“Strength is broad-based, led by automotive and mobile,” he writes. “Despite lingering macro uncertainties, industrial/auto appear on pace for recovery. Looking to 2021, we are hopeful the macro backdrop will begin to normalize.” He repeats his Outperform rating and $170 price target.
On Friday, Texas Instruments was up 1.4%, to $154.67, while Veoneer was down 2.4%, to $18.15. The rest of the group is fractionally higher.
Write to Eric J. Savitz at eric.savitz@barrons.com
Six Chip Stocks to Play a Rebound in Auto Sales - Barron's
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