On Friday, Wells Fargo (NYSE:WFC) began coverage on ON Semiconductor (NASDAQ:ON), issuing an Overweight rating along with a price target of $85.00. The initiation of the coverage comes with optimism towards the company's growth prospects, particularly in the silicon carbide (SiC) market, which is expected to benefit from the increasing adoption of battery electric vehicles (BEVs).
The Wells Fargo analyst highlighted that despite semiconductor demand experiencing fluctuations, ON Semiconductor's strong competitive position is anticipated to contribute to accelerating revenue growth. This growth is linked to the expanding opportunities in the BEV sector, where SiC components are becoming increasingly integral.
ON Semiconductor's revenue from SiC, which is used in electric vehicle components, had a moderate single-digit percentage increase year-over-year. However, Wells Fargo maintains a positive outlook for the company's growth potential in this area. The firm anticipates a significant acceleration in 2025, with SiC revenue growth expected to be about 27% year-over-year, reaching approximately $1.1 billion.
The analysis provided by Wells Fargo suggests that outside of Tesla (NASDAQ:TSLA), SiC penetration in the auto industry is relatively low, estimated at around 11.5% in 2024 with little change year-over-year. Nevertheless, the firm's auto SiC analysis model, which is available upon request, forecasts ON Semiconductor's automotive SiC revenue to surpass $900 million in 2025, marking a 33% increase from the previous year.
The projection for 2025 includes potential share gains that could further drive revenue for ON Semiconductor. The firm's positive stance is underpinned by the belief that ON Semiconductor will capitalize on these market opportunities to achieve significant growth in the coming years.
In other recent news, ON Semiconductor has been making notable advancements with its Treo Platform, a new addition to the high-performance analog segment. The platform has already sampled 10 Stock Keeping Units (SKUs), with a plan to double this figure by mid-2025. The company's management has set ambitious financial goals for Treo, targeting a $1 billion revenue mark by 2030. In addition, ON Semiconductor reported a slight increase in its third-quarter earnings, with revenue rising to $1.76 billion, marking a 2% sequential growth.
Several analyst firms have taken note of these developments. Needham, Loop Capital, and Deutsche Bank (ETR:DBKGn) have all maintained a Buy rating for ON Semiconductor. The firms highlighted the company's strong position in the automotive market, the potential of the Treo Platform, and the company's attractive valuation. However, Baird has expressed caution about the pace of recovery and high inventories, while maintaining a Neutral stance on the stock.
In the fourth quarter, ON Semiconductor anticipates revenue to fall between $1.71 billion and $1.81 billion. Despite expectations of flat revenue, an increase in automotive sales in the low to mid-single digits is forecasted.
InvestingPro Insights
To complement Wells Fargo's optimistic outlook on ON Semiconductor (NASDAQ:ON), recent data from InvestingPro provides additional context for investors. Despite the company's promising position in the silicon carbide market, InvestingPro Tips indicate that 21 analysts have revised their earnings downwards for the upcoming period, and sales are anticipated to decline in the current year. This caution is reflected in the company's revenue growth, which stands at -11.52% over the last twelve months as of Q3 2024.
However, ON Semiconductor maintains a strong financial position. With a market capitalization of $29.15 billion and a P/E ratio of 15.76, the company appears reasonably valued compared to its growth prospects. The company's operating income margin of 28.19% demonstrates efficient operations, aligning with Wells Fargo's view on ON's competitive strength.
An InvestingPro Tip highlights that ON Semiconductor is a prominent player in the Semiconductors & Semiconductor Equipment industry, supporting Wells Fargo's confidence in the company's market position. Additionally, the company's ability to cover interest payments with its cash flows suggests financial stability, which could be crucial as it invests in growth opportunities in the BEV sector.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for ON Semiconductor, providing a deeper understanding of the company's financial health and market position.
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