Melexis Earnings: Excess Inventory Will Cause Weak End of the Year; Maintaining Fair Value Estimate

We maintain our EUR 100 fair value estimate after Melexis gave a weaker-than-expected outlook for the last quarter of the year. Melexis now expects EUR 935 million to EUR 945 million in 2024 sales, down from EUR 1 billion previously, as European and US automotive customers have pushed out some orders given they have too much inventory. The exact timing of the correction is uncertain, but even if it extends into 2025, we don’t see any threat to Melexis' long-term thesis, and we anticipate that once customer inventories have been reduced, orders will rebound strongly—a situation known in the industry as the bullwhip effect. Melexis pushouts come from specific OEMs. We forecast lower sales than previously in 2024 and 2025, but a more pronounced recovery after. Given Melexis has the balance sheet capacity and cost structure to withstand any temporary downturn, we believe this is a good moment to invest in the shares, with our fair value estimate now offering more than 60% upside.