Investing.com -- Morgan Stanley (NYSE:MS) has upgraded Nordic Semiconductor (OL:NOD) to "equal-weight" from "underweight," citing a narrowing gap between the company’s near-term performance and its medium-term targets.
The upgrade follows a strong fourth-quarter 2024 earnings report and a first-quarter 2025 outlook that exceeded expectations, signaling improving demand trends.
Nordic’s revenue for the fourth quarter of 2024 landed at the upper end of its guidance, driven by a rebound in consumer electronics, steady growth in healthcare, and ongoing softness in the industrial sector, particularly in Europe.
The company reported a 40% year-over-year increase in its consumer segment, which remains its largest revenue driver at 63% of total sales.
Growth in healthcare was attributed to restocking by key customers, while industrial demand remained sluggish.
Analysts at Morgan Stanley noted that a broader market recovery contributed to the strong performance, with management expressing confidence in sustained improvement heading into the first quarter of 2025.
As a result, the brokerage has significantly raised its earnings projections for Nordic, lifting estimated EBITDA for fiscal years 2025 and 2026 by approximately 98% and 31%, respectively. Revenue and gross margin estimates were also adjusted upward by 17% and 11%.
The price target for Nordic has been revised to NOK 140, based on a valuation of 36 times estimated 2026 earnings per share.
While this represents a premium to European semiconductor manufacturing peers, it remains below the valuation multiple of the U.S.-listed IoT competitor Silicon Labs.
Morgan Stanley initially moved to "underweight" on Nordic Semiconductor in September 2024, citing limited visibility and a challenging risk-reward profile.
Analysts had argued that the company’s near-term outlook was disconnected from its long-term ambitions.
However, after Nordic’s latest earnings report and the company’s improved revenue trajectory, the perception gap has narrowed, prompting the upgrade.
The brokerage emphasized the importance of seasonality in Nordic’s financial performance. The first quarter has historically accounted for around 20% of the company’s annual revenue, and management has suggested that a return to pre-pandemic seasonal patterns is likely in 2025.
If these trends hold, second-quarter growth could reach 15% sequentially, leading to an overall annual revenue increase of 32%, much above the company’s September 2024 guidance of below 17%.
Despite the upgrade, Morgan Stanley remains cautious about volatility risks. The brokerage’s valuation model presents a wide range of potential outcomes, with a bullish scenario placing Nordic’s fair value at NOK 275 and a bearish case at NOK 55.
The bull case assumes stronger-than-expected revenue growth in 2025 and 2026, aligning with the company’s target of over 20% annual growth.
In contrast, the bear case factors in weaker demand and cost-cutting measures, resulting in lower earnings and a more conservative valuation.