Microchip Technology Incorporated (MCHP) shares rose more than 2% during Monday's session after Morgan Stanley upgraded the stock to Overweight with a $131 price target.

Key Takeaways

  • Microchip Technology shares moved higher after Morgan Stanley upgraded the stock to Overweight with a $131 price target.
  • The company previously said that it expects a 2% to 6% sequential sales decline during the second quarter while guiding toward the lower end of non-GAAP EPS.
  • The stock is approaching key resistance levels of $116.00, but traders could see a move toward the 200-day moving average at $96.42 if it fails to break out.

Morgan Stanley upgraded Microchip stock from Equal Weight to Overweight and raised its price target from $109 to $131. Analyst Craig Hettenbach believes that the company's high leverage and volatile bookings have overshadowed its margin expansion and improving business mix, which could drive the stock's multiples higher as leverage comes down.

A multiple can be used to show how much investors are willing to pay per dollar of earnings, as computed by the price-to-earnings ratio (P/E ratio).

Last month, Microchip suggested that second quarter sales could be down between 3% and 6% sequentially compared to the prior estimate of a flat to 8% decline. Non-GAAP earnings per share were forecast to be between $1.36 to $1.46, which was on the lower end of then-consensus estimates of $1.43 per share.

Chart showing the share price performance of Microchip Technology Incorporated (MCHP)
TradingView.com

From a technical standpoint, the stock moved higher to retest reaction highs and trendline resistance at around $116.00. The relative strength index (RSI) continues to trend toward overbought levels with a reading of 63.23, but the moving average convergence divergence (MACD) continues to move higher following its crossover above the zero line.

Traders should watch for a breakout from trendline resistance that could signal a new uptrend. If that happens, traders could see a move to fresh reaction highs. If the stock fails to break out, traders could see the price continue to move within its price channel, with support near the 200-day moving average at $96.42 or trendline support at around $96.00.

The Bottom Line

Microchip Technology rose more than 2% during Monday's session after Morgan Stanley upgraded the stock to Overweight with a $131 price target. Traders should watch for a breakout to fresh highs or consolidation within its existing price channel.

The author holds no position in the stock(s) mentioned except through passively managed index funds.