- Q4 2025 guidance (midpoint): revenue $3.28B, gross margin 35.0%.
- Implied FY 2025 revenue (midpoint): ~$11.75B; FY25 gross margin ~33.8%.
- FY25 net capex plan: slightly below $2B.
- M&A: acquisition of NXP MEMS sensor business for up to $950M cash (expected close H1 2026).
STMicroelectronics (STM) — Intrinsic Valuation Memo (DCF-First)
Report date: December 14, 2025 | Green Apple Investments
Base intrinsic value
$21/share
Using FY24 diluted shares (~939.3M)
Fair value range
$10–$37
Bear / Base / Bull framing (cycle-sensitive)
"Grandma-safe" zone
$14
≈35% discount to base (cyclical + capex-heavy)
●
Key point: Downcycle absorption + elevated capex dominate near-term owner earnings.
1) Business snapshot
STMicroelectronics (STM) is a diversified, Europe-headquartered integrated device manufacturer (IDM) serving automotive, industrial, personal electronics, and communications end-markets.
Reporting structure (current)
- APMS Product Group: AM&S (analog + MEMS/sensors + imaging) and P&D (power & discrete)
- MDRF Product Group: EMP (embedded processing / MCUs) and RF&OC (RF & optical comms)
Core moat / core risk
High in-house manufacturing can be an advantage in supply and cost at scale, but creates fixed-cost leverage when utilization is low (downcycle absorption).
2) Recent financial anchor
FY 2024 (full-year)
| Metric | Value | Comment |
|---|---|---|
| Net revenues | $13.269B | Down from $17.286B (FY23) |
| Operating income | $1.676B | FY23: $4.611B |
| Net income attributable to parent | $1.557B | FY23: $4.211B |
| Net cash from operating activities | $2.965B | FY24 |
| Net capex (non‑U.S. GAAP) | $2.53B | FY24 |
| Free cash flow (non‑U.S. GAAP) | $0.288B | FY24 |
Latest interim: Q3 2025
| Metric | Value | Comment |
|---|---|---|
| Net revenues | $3.187B | Q3 2025 |
| Gross margin | 33.2% | Q3 2025 |
| Operating income | $0.180B | Includes $37M impairment/restructuring/phase-out costs |
| Net income | $0.237B | Q3 2025 |
| Net cash from operating activities | $0.549B | Q3 2025 |
| Net capex (non‑U.S. GAAP) | $0.401B | Q3 2025 |
| Free cash flow (non‑U.S. GAAP) | $0.130B | Q3 2025 |
| Inventory | $3.17B | 135 days (improved vs 166 days prior quarter) |
| Adjusted net financial position | $2.27B | Net cash position at Sep-2025 |
Guidance / notable items (as of Q3 2025 release)
3) Key drivers & assumptions
Model assumptions (conservative; clearly labeled)
- Revenue recovery (Base): from FY25 ~$11.75B to $15.4B by 2030.
- Operating margin recovery (Base): 9% → 15% from 2026 to 2030 (still below FY23 peak profitability).
- Tax rate: 20% (rounded up for conservatism).
- D&A: ~13% of revenue (reflecting heavy asset base).
- Net capex: moderating from ~16% of revenue (2026) to ~14% (2029–2030).
- Working capital: assumed neutral (no benefit from inventory unwind).
- Net cash adjustment: start with adjusted net financial position $2.27B (Sep-2025), subtract $0.95B expected cash acquisition outlay.
- Share count: base per-share uses FY24 diluted shares ~939.3M (conservative).
What would push the assumptions up or down?
- Up: faster auto/industrial normalization, better utilization, restructuring savings, capex easing toward depreciation.
- Down: prolonged pricing pressure, utilization weakness, capex staying elevated, slower cost reset.
4) Discount rate (WACC) — full math
Assumptions (not market quotes):
- Risk-free rate (Rf): 4.0%
- Equity beta (β): 1.30
- Equity risk premium (ERP): 5.5%
- Pre-tax cost of debt: 4.5%
- Tax rate: 20% → after-tax Rd: 3.6%
- Target structure: 90% equity / 10% debt
Cost of equity: Re = Rf + β×ERP = 4.0% + 1.30×5.5% = 11.15%
WACC: 0.90×11.15% + 0.10×3.6% = 10.40% → 10.0% base case.
Why the beta / WACC are conservative here
- IDM cost structure creates fixed-cost leverage in downcycles (utilization swings).
- Capex intensity increases earnings volatility and reinvestment risk.
- Sensitivity table below shows how much results move with small WACC shifts.
5) DCF valuation results (unlevered FCFF)
FCFF approximated as: FCFF = EBIT×(1–tax) + D&A – net capex – ΔWC (ΔWC assumed 0).
Base-case forecast table
| Year | Revenue ($B) | EBIT margin | EBIT ($B) | FCFF ($B) |
|---|---|---|---|---|
| 2026 | 12.50 | 9.0% | 1.12 | 0.52 |
| 2027 | 13.30 | 11.0% | 1.46 | 0.90 |
| 2028 | 14.00 | 13.0% | 1.82 | 1.25 |
| 2029 | 14.70 | 14.0% | 2.06 | 1.50 |
| 2030 | 15.40 | 15.0% | 2.31 | 1.69 |
Base-case valuation bridge (summary)
- Enterprise value (EV): ~$18.6B
- Add adjusted net cash (Sep-2025): +$2.27B
- Less expected cash acquisition outlay: –$0.95B
- Equity value: ~$19.9B
- Per-share intrinsic value (FY24 diluted shares ~939.3M): ~$21.2/share
Note: This is a simplified memo model designed for conservatism and decision framing.
6) Sensitivity table (per share, USD)
Per-share intrinsic value using FY24 diluted shares (~939.3M), across WACC and terminal growth. Cells are heatmapped for faster scanning.
| WACC \ g | 1% | 2% | 3% | 4% |
|---|---|---|---|---|
| 9% | 20.9 | 23.1 | 26.2 | 30.4 |
| 10% | 18.5 | 20.2 | 22.4 | 25.3 |
| 11% | 16.6 | 17.9 | 19.6 | 21.7 |
Bear / Base / Bull (cycle framing)
- Bear: ~$10.5/share (slower recovery, margins capped near low-teens, capex stays high)
- Base: ~$21.2/share
- Bull: ~$37.5/share (faster recovery, margins high-teens, capex moderates)
7) "Grandma-safe" conclusion
Base intrinsic value: ~$21/share (conservative diluted-share basis).
Fair value range: ~$10–$37/share (cycle + utilization + capex outcomes).
Grandma-safe buy zone
Because this is cyclical and capex-heavy, require ~35% discount to base intrinsic value.
Grandma-safe zone: ~$14/share or below (≈ 35% under $21).
Top 5 things that could make the valuation wrong
- Cycle duration: auto/industrial recovery slower; utilization stays low.
- Structural margin reset: competition/pricing prevents normalized margins.
- Capex intensity: capex remains elevated, limiting FCFF even if revenue improves.
- Restructuring execution: savings slip; charges exceed expectations.
- Capital allocation: acquisition integration/returns disappoint.
Decision framing (educational): If you believe normalization to ~15% operating margin on ~$15B+ revenue is achievable with capex easing toward depreciation, the base value is a reasonable anchor. If not, underwrite closer to bear and demand a larger discount.
Sources & disclaimer
- STMicroelectronics: FY 2024 annual report / Form 20-F (financial statements; shares; cash/debt).
- STMicroelectronics: Q3 2025 results press release (revenue, margins, cash flow, inventory, guidance, capex).
- Public reporting context: restructuring/cost actions; EIB credit line; manufacturing footprint commentary.
Disclaimer: This document is for informational/educational purposes only and is not investment advice. Forecasts are uncertain; consult a qualified professional before acting.