Melexis Earnings: Shares Undervalued; Maintain Our EUR 105 Fair Value Estimate; 16% Growth in Sales

Narrow-moat Melexis shares were up 6% on the morning of Oct. 25 after strong results for the third quarter. The share price reaction has now moderated and shares are flat at the time of the writing. Sales increased 16% organically to EUR 249 million with an operating margin of 28.6%, the highest quarterly margin in several years. However, we do not expect this record margin to be maintainable in the long term and we forecast a terminal midcycle operating margin of 24%. We expect revenue growth will moderate in 2024 and 2025 as the supply of automotive chips keeps growing and demand moderates after the shortage since the coronavirus pandemic. We maintain our EUR 105 fair value estimate, with shares trading at 13.3 times the 2022 EBIT and 11.7 times the last 12 months' EBIT.