Microchip Technology (MCHP) is experiencing enhanced level of restructuring urgency, and customer and product focus due to the return of "well-regarded" prior chief executive officer Steve Sanghi, BofA Securities said Friday in a research note.

The company named Sanghi as interim CEO in November 2024, succeeding Ganesh Moorthy. Sanghi had previously led the company as CEO from 1991 through 2021.

The recovery in aerospace and defense markets has also boosted restructuring urgency and product focus at the company, the brokerage said.

BofA noted the company's fiscal Q4 EPS was "crushed in this downcycle." The company reported non-GAAP earnings for the quarter ended March 31 of $0.11 per diluted share, down from $0.57 a year earlier.

However, the brokerage believes that even a modest rebound in sales could result in "outsized earnings leverage as GMs rapidly expand from depressed ~53% levels towards low-60% by end of FY27E as utilization rises and inventory charges clear which along with potential ~85% incremental OpMs could help pf-EPS to grow at a 30% FY25-28E CAGR and return to normalized$3/share levels in FY28."

BofA noted that the company's management is "highly focused" on restructuring efforts, including resizing of its footprint, planned reduction in headcount, and reorientation of business units and channel strategy to boost growth.

Risk factors include end demand weakness due to tariffs, domestic insourcing at China customers in response to government mandates that could challenge the company's 10% of sales tied to China consumption and the rising microcontroller unit competition.

Citing signs of a potential cyclical upturn and Sanghi's restructuring efforts, BofA upgraded the company to neutral from underperform. It also raised the price target on the stock to $56 from $44.

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