STMEF
STMicroelectronics N.V.
$52.20
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 52.5% above fair value
You pay
$52.20
Bear
$26.40
Fair
$34.24
Bull
$42.08
Bear
$26.40
-49.4%
$1.96 × 12x + net cash
Fair
$34.24
-34.4%
$1.96 × 16x + net cash
Bull
$42.08
-19.4%
$1.96 × 20x + net cash
Key Value Driver
Through-cycle normalized EPS ($1.96)
Implied Market Multiple
26.6x
Summary
Using 7-year normalized EPS of $1.96 at a 16x cycle multiple, the base-case value is $34.24 per share. P/TBV cross-check: 2.7x.
Warnings
Price-to-book value of 2.7x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
This company has heavy ongoing investment costs. Valuation shortcuts that ignore those costs can make the stock look cheaper than it really is.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing