Microchip Technology Vs Hilton Worldwide Holdings – Analysts Discuss Which is the Best Stock to Buy in 2024

Microchip Technology Inc. (NGS: MCHP)

Microchip Technology Inc. (NGS: MCHP) While the company reports some normalization in demand, we believe consumer behavior is forever changed.

RECENT DEVELOPMENTS

Fiscal 2Q21 revenue exceeded management’s $1.25 billion guidance midpoint, as well as the $1.26 billion consensus estimate.

As fiscal 1Q21 progressed, key product lines of microcontrollers, analog and FPGA began to recover from pandemic-related disruptions both in supply chain and in demand.

The net effect was sequentially stable revenue. Microchip was able to generate improving efficiencies in its normalizing end markets, resulting in operating margin expansion and 9% annual EPS growth.

FPGA revenue (8% of total) rebounded from a tough prior quarter with 16% annual GAAP revenue growth and 12% sequential growth. The COO cautioned that FPGA could remain ‘lumpy’ due to ongoing aerospace exposure.

In the two-plus years since closing that deal, Microchip has paid down $2.95 billion. The company has and will continue to allocate substantially all excess cash beyond dividend payments to ‘aggressively bring down this debt,’ according to CEO Eric Bjornholt.

Concurrent with the 11/5/20 release of fiscal 2Q21 results, Microchip announced leadership transition.

Mr. Sanghi is the longest-tenured CEO in the semiconductor industry, taking the company public in 1993 with annual sales of $89 million; the current annualized revenue run rate is close to $5.3 billion.

These include ‘Huawei’s push through the supply chain’ as it sought to complete manufacturing of a large inventory of products before the shipment ban took effect. Simultaneously, competition among Huawei’s competitors to replace it in key markets also pressured the supply chain. Finally, the ongoing shift of semiconductor manufacturing out of China to avoid tariffs further stressed the supply chain by pressuring capacity in other Asian nations.

At the same time, the recovery in automotive and industrial end markets, coupled with the launch of upwards of a 100 or more new 5G handsets on a global basis, has added further strains to the global technology supply chain. The confluence of these factors has created constraints that are extending into the current December quarter.

In addition to constraints on the supply chain, market dynamics are impacting Microchip’s near-term outlook. Microchip is seeing improved bookings in the automotive, industrial, home appliance, and elective-procedure medical device markets. Simultaneously, certain markets that surged when work-at-home first took shape are reverting to more normal demand patterns; these include work & learn from home PCs data center, and medical devices directly related to fighting the pandemic. A final consideration is that Huawei, which was a 1% customer in fiscal 2Q21, will contribute nothing in fiscal 2Q21.

Taking all these factors into consideration, Microchip looks for 0%-5% sequential top-line growth for fiscal 3Q21. Normal 2Q to 3Q seasonality would be a mid-single-digit sequential decline; along with the loss of the 1%-of-sales contribution from Huawei, sequential sales guidance is much stronger than normal seasonal. Management believes this reflects both end market recovery and market-share gains.

We believe that Microchip will continue to strengthen its position as a one-stop shop in key markets. The company is simultaneously focused on reducing debt taken on as part of the Microsemi acquisition and improving its balance sheet. In our view, MCHP offers good value at current levels.

EARNINGS & GROWTH ANALYSIS

Which was down 2% annually and stable sequentially. Fiscal 2Q21 revenue exceeded management’s $1.25 billion guidance midpoint, as well as the $1.26 billion consensus estimate.

Fiscal 2Q21 non-GAAP EPS was $1.56, which was up 9% year-over-year and exactly in line with 1Q21 non-GAAP EPS. Adjusted earnings exceeded the high end of the guidance range of $1.30-$1.52 and also topped the $1.42 consensus estimate.

After implementing company-wide pay cuts early in the crisis, Microchip intends to restore employee salaries to pre-pandemic levels.

FINANCIAL STRENGTH & DIVIDEND

Microchip in November 2024 inched up its quarterly dividend to $0.3685 per share, from a prior $0.3680, for a 0.1% increase.

Our dividend estimates are $1.47 for FY21 and $1.48 for FY22.

MANAGEMENT & RISKS

The stock news portal Beststocks.com reported that Microchip announced that current president and COO Ganesh Moorthy will succeed to the CEO role on March 1, 2024. He will succeed long-time CEO Steve Sanghi, who will transition to the executive chairman role on that date.

Hilton Worldwide Holdings Inc. (NYSE: HLT)

Hilton Worldwide Holdings Inc. (NYSE: HLT) to BUY from HOLD and setting a target price of $120. We believe that the development of an effective coronavirus vaccine, which now seems more likely in the near term, will boost room demand by allowing consumers to travel more freely. We also expect an eventual decline in COVID-19 cases to result in higher RevPAR and accelerated management fee growth.

RECENT DEVELOPMENTS

The GAAP loss totaled $0.28 per share.

Primarily reflecting lower franchise and licensing fees, as well as much lower leased and owned hotel revenue, total revenue fell 61% to $933 million.

Franchise and licensing fees of $241 million declined from $443 million a year earlier, while base and other management fees fell to $24 million from $80 million. Revenue from owned and leased hotels dropped by $267 million to $94 million.

Interest expense rose to $116 million from $105 million, and the share count fell by 9 million to 279 million.

It also suspended dividend payments and share buybacks on March 26.

In March 2017, HNA Tourism Group Co. acquired 82.5 million Hilton shares (a 25% equity interest) from Blackstone Group L.P.

EARNINGS & GROWTH ANALYSIS

Reflecting strong conversion activity and a surge in construction starts, Hilton has raised its guidance for 2024 unit growth to 4%-5% from a prior 3.5%-4.0%,.

FINANCIAL STRENGTH & DIVIDEND

On March 26, Hilton said it would suspend share buybacks and dividends.

MANAGEMENT & RISKS

Like its peers, Hilton has been battered by the coronavirus pandemic. The company is also subject to strikes by unionized employees.

COMPANY DESCRIPTION

With a market cap above $29 billion, the shares are generally regarded as large-cap growth.

VALUATION

Analysts believe that a higher multiple is warranted as we expect HLT to benefit from the development of an effective coronavirus vaccine, which now seems more likely in the near term. We also expect renewed growth in room demand, RevPAR, and management fees as the travel industry recovers.