The manufacturing of electrical vehicles (EVs) has slowed significantly due to a global shortage of semiconductor chips. However, many semiconductor companies are now ramping up their production to meet the rising demand. So, the supply challenge may not exist for the EV industry for much longer. According to Meticulous Analysis, the electric vehicle market is expected to grow at a 33.6% CAGR of between 2020 – 2027, to hit $2.5billion by 2027.
Given the growing demand and supply shortage, the prices of semiconductors are rising, benefiting the semiconductor industry significantly. And strong investor attention to the semiconductor space is evidenced by the SPDR S&P Semiconductor ETF’s (XSD) 59.1% returns over the past year versus the SPDR S&P 500 ETF’s (SPY) 41.4% returns.
While the timing of the recovery of the EV industry depends in-part on how quickly semiconductor companies are able to meet the industry’s demand for chips, two prominent players in this space—STMicroelectronics N.V. (STM) and Renesas Electronics Corporation (RNECF)—are exhibiting their strength in support of the EV industry through their relatively better supply now. So, we think these two stocks are well positioned for handsome gains soon.
Click here to checkout our Semiconductor Industry Report for 2021
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs, develops, manufactures and markets semiconductor products across Europe, the Middle East, Africa, America, and Asia Pacific. It operates through three segments: Automotive and Discrete; Analog, MEMS and Sensors; and Microcontrollers and Digital ICs. Its offerings include automotive integrated circuits (ICs), application-specific integrated circuits (ASICs), and radio frequency (RF).
On May 6, STM launched a new family of ST Intelligent and Integrated Gallium Nitride (GaN) solutions—STi2GaN. Because the unique product combines the power and intelligence in compact, high-performance solutions, it is expected to drive the company’s sales in the near-term.
STM’s net revenue increased 35.2% year-over-year to $3.02 billion for the first quarter, ended April 3. Its operating income grew 90.3% year-over-year to $440 million, while its net income increased 89.6% year-over-year to $364 million. The company’s EPS increased 85.7% year-over-year to $0.39.
Analysts expect STM’s EPS and revenue to increase 270% and 38.4%, respectively, year-over-year to $0.37 and $2.89 billion for the current quarter, ending June 30. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 37.6% over the past year and closed yesterday’s trading session at $34.33.
STM’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Quality, Sentiment and Value. Within the B-rated Semiconductor & Wireless Chip industry, STM is ranked #1 of 98 stocks. To see the additional POWR Ratings for STM (Stability and Momentum), click here.
Renesas Electronics Corporation (RNECF)
Based in Tokyo, Japan, RNECF researches, develops, designs, manufactures, sells, and services semiconductors internationally. It operates through two segments: Automotive Business and Industrial, Infrastructural and Internet of things (IoT) Business. The company offers automotive products, including battery management, power devices, sensors, display, wireless power and system-on-chips.
In February, RNECF announced the development of processor technologies for automotive systems-on-chip (SoCs). The technology is for use in applications such as advanced driver assistance systems (ADAS) and autonomous driving (AD) systems. The innovation is expected to drive the company’s sales in the near-term.
RNECF’s net revenue increased 14% year-over-year to 203.7 billion yen ($180.52 million) for the first quarter, ended March 31. Its operating income grew 126.8% year-over-year to 30.2 billion yen ($26.76 million), while its profit before tax increased 24.3% year-over-year to 17.6 billion yen ($15.6 million). The company’s EPS increased 19.4% year-over-year to 7.75 yen.
Analysts expect its revenue to increase 42.3% year-over-year to $7.8 billion in its fiscal year 2021. The stock has gained 107.9% over the past year and closed yesterday’s trading session at $10.75.
RNECF’s strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, which equates to Strong Buy in our proprietary ratings system. The stock has a B grade for Growth, Stability, Value and Quality.
We have also graded RNECF for Sentiment and Momentum. Click here to access all RNECF’s ratings. RNECF is ranked #3 in the same industry.
Click here to checkout our Electric Vehicle Industry Report for 2021
STM shares were trading at $34.72 per share on Thursday afternoon, up $0.39 (+1.14%). Year-to-date, STM has declined -6.37%, versus a 9.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More…
