Investing.com -- Bank of America upgraded Microchip Technology (NASDAQ:MCHP) to Neutral from Underperform on Friday.
The bank cited early signs of a sales recovery, aggressive cost-cutting measures, and renewed strategic focus under the leadership of returning CEO Steve Sanghi.
“The return of well-regarded prior CEO Steve Sanghi has greatly enhanced the level of restructuring urgency and customer/product focus at Microchip,” BofA analysts wrote in a note.
They pointed to an improving outlook in industrial markets such as aerospace and defense, which are key end markets for the company.
Following a better-than-expected earnings report, BofA raised its price objective for Microchip to $56 from $44, noting that the upgrade comes despite the company still facing a “very deep” downturn.
“MCHP’s 50-60% peak-trough correction remains the deepest in the industry,” the firm noted, and recovering its prior earnings power without a strong macro rebound is “a risky assumption in the current macro environment.”
Still, BofA is optimistic about the company’s earnings potential. “Even a modest sales rebound could translate into outsized earnings leverage,” analysts wrote.
They forecast a potential return to normalized $3 per share earnings by fiscal 2028, supported by gross margins expanding from ~53% to the low-60% range and improved operating efficiencies.
BofA now expects pro forma EPS of $0.96/$2.11/$2.73 for calendar years 2025 through 2027.
Cost-saving actions are said to be central to the turnaround story. “Mgmt. is highly focused on turnaround efforts,” BofA said, citing the closure of Microchip’s Tempe fab, a 10% reduction in workforce, and a reoriented go-to-market strategy.
While risks remain, BofA sees earnings inflection and operational discipline as meaningful offsets to these challenges.
