Here’s What’s Driving STMicroelectronics NV (ADR) (NYSE:STM) on Wednesday


STMicroelectronics NV (ADR) (NYSE:STM) is up on the release of some lacklustre financials – here’s why.

Swiss semiconductor company STMicroelectronics NV (ADR) (NYSE:STM)  just reported  its first quarter 2016 financials, and bulls are flocking to gain exposure to the upside that the data has induced. Here’s a look at what the data suggests about the company’s ongoing operations, and what we are looking for going forward from ST as an indication that it can maintain its current performance throughout the latter half of 2016.

First, for those not familiar with the company, it makes Semiconductors for large-scale applications and mechanical grade machinery. Examples include those that control automotive related software and industrial machinery automation. We could go into a lot more detail here, but we won’t bore those that just want an overview. There’s a lot more information at the company’s website here.

So, looking at the numbers, the company reported net revenues of $1.61 billion during the first three months of the year, with gross margin on these revenues of a little over 33%.  It’s a small decline over the comparable period in 2015, but ST management stated alongside the results that it expects to make up this decline before the year draws to a close – presumably, during the third quarter, as electronics sales traditionally pick up.

Net income for the period came in at a $41 million loss, with an operating loss of $33 million. Pretty much all figures missed on analyst expectations, but – as mentioned – the company is up on the news – 10% at last count.

Why is this?

Markets expected something of decline based on the slowing of the Asian market, but with analysts’ forecasts now revised to accommodate some low-level expansion out of China, the remainder of 2016 looks far better than did the remainder of 2015 this time last year. Additionally, the company’s net financial position looks pretty solid, coming in at $439 million as of April 2, 2016.

So what are we looking for going forward? Well, we’d like to see ST maintain it’s aforementioned cash position, while also keeping things solid from an inventory turnover perspective. Currently, inventory turns sit at 109 days which is relatively solid for the space.

Mid market US, ST trades at a little over $6.45 on Wednesday.

Image courtesy of SCMicro

DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.