JP Morgan maintains a "neutral" rating on STMicroelectronics NV ADR RegS (STM.US): short-term performance is solid, but challenges remain in 2026 with the automotive sector.

J.P. Morgan has issued a research report maintaining a "neutral" rating for STMicroelectronics NV ADR RegS (STM.US) Euro stocks, with a target price of 26.40 euros. The bank pointed out that although the market is somewhat optimistic about the company's third-quarter performance and fourth-quarter guidance, there is still significant uncertainty about its growth expectations for the 2026 fiscal year, primarily due to the ongoing weakness in the automotive industry. STMicroelectronics NV ADR RegS is set to announce its third-quarter financial results on October 23rd. J.P. Morgan expects the company's third-quarter revenue to reach $3.17 billion, a 14.6% increase quarter-on-quarter and a 2.5% decrease year-on-year, consistent with market consensus and company guidance. By business segment, analog, power and discrete devices, MEMS, and sensor (APMS) business is expected to decline by about 9.9% year-on-year, while microcontrollers, digital integrated circuits, and RF products (MDRF) business is expected to grow by about 9.4% year-on-year. The APMS segment is expected to grow by 13.6% quarter-on-quarter, while the MDRF segment is expected to grow by 16.0%, indicating a gradual recovery for the company from the cyclical low point in the first quarter of 2025. In terms of profitability, the third-quarter gross margin is expected to be 33.5%, in line with consensus expectations and company guidance. Earnings before interest and taxes (EBIT) are expected to be $202 million, with an EBIT margin of 6.4%, also in line with consensus expectations; net profit is expected to be $198.3 million, with earnings per share expected to be $0.22, exceeding consensus expectations by 4.4% and 2.7% respectively. Looking ahead to the fourth quarter, the market consensus expectation for STMicroelectronics NV ADR RegS is for revenue of $3.35 billion, a 5.6% increase quarter-on-quarter and a 1.0% increase year-on-year; gross profit is expected to be $1.17 billion, with a 10.3% increase quarter-on-quarter and a 6.4% decrease year-on-year, with a gross margin of 35.0%. However, J.P. Morgan's estimate for fourth-quarter revenue is slightly lower, at around $3 billion. STMicroelectronics NV ADR RegS has indicated that based on order visibility, both the automotive and industrial business segments are expected to achieve growth in the fourth quarter. With improvements in capacity utilization, production efficiency, and an increase in the proportion of high-margin microcontroller (MCU) products in revenue, the gross margin in the fourth quarter is expected to improve. Additionally, signs of recovery in the industrial semiconductor market and the end of inventory adjustments in China suggest a possibility of revenue exceeding expectations in the fourth quarter, with the consensus expectation of a 151 basis point quarter-on-quarter improvement in gross margin also likely achievable, as the company plans to maintain inventory levels at the third-quarter level to improve capacity utilization, MCU business recovery will also help improve profit margins, while production structure adjustments are still ongoing. Although there are positive signals in the short term, J.P. Morgan remains cautious about the performance of STMicroelectronics NV ADR RegS in 2026. The current market consensus expects a 12.5% year-on-year increase in sales and a 273 basis point increase in gross margin in 2026 for STMicroelectronics NV ADR RegS, but the bank believes that this growth expectation is overly optimistic. The core concern lies in the automotive market, as J.P. Morgan believes that problems in the automotive market will continue in 2026, with overall inventory remaining high, and unless there is a significant economic recovery, capacity utilization will continue to be affected. Therefore, the bank states that unless there is a reset of performance expectations in 2026, or there is a significant recovery in semiconductor demand for automotive, industrial, and Apple Inc.-related businesses, it will be difficult for the stock price to outperform after the third-quarter performance announcement.