Our target price of $90.00 is based on 29X C26E EPS, above its historical average due to depressed earnings. We expect Microchip should have the strongest bounce in fundamentals given the steep decline in revenue and restructuring. We continue to expect the company to exhibit the highest earnings growth after the current economic downturn.

M&A accretion: If Microchip fails to achieve margin/EPS accretion from its recent acquisitions, it could result in downside to our estimates. 

End-market: Microchip derives roughly 41% of sales from the Industrial end-market. Therefore, any major uptick/downtick in automotive production could result in upside/downside to our estimates and rating for Microchip. 

Competition: Any fluctuations in share in the microcontroller market between Microchip and its competitors could result in risk to our estimates.

Inventory risk: Microchip sells roughly 51% of its products through distributors. As a result, we believe any major inventory corrections in the distribution channel could result in downside risk to our estimates.

Semiconductor cycle: Microchip has broad-based exposure across multiple products and end-markets. Therefore, if the overall semiconductor market enters a downturn, it could result in downside to our estimates.

Macroeconomic: Microchip’s geographic exposure spans multiple geographies including the U.S., Europe, and Asia. As a result, any prolonged macroeconomic downturn/upturn could result in downside/upside to our estimates and rating.

If the impact on the company from any of these factors proves to be less/more negative than we anticipate, the stock could materially outperform/underperform our target price.