On Friday, Mizuho Securities adjusted its outlook on ON Semiconductor (NASDAQ:ON), reducing the price target to $85.00 from the previous $87.00. Despite the price target cut, the firm kept its Outperform rating on the stock. The adjustment follows a revision of the company's expected financial performance for the upcoming quarters and fiscal years.
The firm's analyst pointed out a slight decrease in the December quarter's forecast, revising the revenue and earnings per share (EPS) estimates from $1.75 billion and $0.98 to $1.73 billion and $0.97, respectively. This adjustment is slightly below the consensus estimates, which stand at $1.79 billion in revenue and $1.01 in EPS.
Looking further ahead, the analyst raised the fiscal year 2025 estimates for ON Semiconductor from $7.62 billion in revenue and $4.75 in EPS to $7.76 billion and $4.84, respectively. These projections are in line with the consensus revenue and slightly above the consensus EPS of $4.78. Similarly, the fiscal year 2026 estimates were increased from $8.57 billion in revenue and $5.83 in EPS to $8.70 billion and $5.90, respectively, surpassing the consensus estimates of $8.65 billion in revenue and $5.84 in EPS.
The rationale behind maintaining an Outperform rating despite the price target reduction is tied to the valuation multiples. The new price target represents approximately 17.6 times the firm's estimated fiscal year 2025 earnings, down from the prior multiple of 18.3 times. This valuation is considered attractive when compared to the semiconductor index (SOX), which trades at around 22.7 times earnings.
The firm's analyst underscored ON Semiconductor's strong position in the electric vehicle (EV) platform and emerging opportunities in data centers (DC) as key factors supporting the positive outlook on the company's stock.
In other recent news, ON Semiconductor has been the focus of several notable developments. Board member Atsushi Abe announced his resignation after a 13-year tenure, which the company clarified was not due to disagreements with its operations, policies, or practices. The process for filling this vacancy remains unclear.
The company's Q2 performance was robust, with revenues reaching $1.74 billion. This led to several analyst firms adjusting their price targets. Truist Securities, TD Cowen, and Baird all raised their targets, citing reasons such as effective control over product development and cost management, and the introduction of new, higher-margin analog products.
ON Semiconductor has also been expanding its portfolio with the acquisition of SWIR Vision Systems, and being named the primary supplier for Volkswagen (ETR:VOWG_p) Group's next-generation traction inverter. Despite these positive developments, Citi maintains a neutral rating due to potential risks, including a slowdown in EV demand and an oversupply situation.
Analysts project Q3 revenue to range between $1.7 billion and $1.8 billion, with non-GAAP earnings per share expected to be between $0.91 and $1.03.
InvestingPro Insights
Recent data from InvestingPro adds depth to Mizuho Securities' analysis of ON Semiconductor. The company's market capitalization stands at $29.66 billion, with a P/E ratio of 15.36, suggesting a relatively modest valuation compared to some high-growth tech stocks. This aligns with Mizuho's view of ON's attractive valuation relative to the semiconductor index.
InvestingPro Tips highlight ON Semiconductor's position as a prominent player in the Semiconductors & Semiconductor Equipment industry, supporting Mizuho's emphasis on the company's strong position in the EV platform and data center opportunities. However, the tips also indicate that analysts anticipate a sales decline in the current year, which may explain Mizuho's slight downward revision for the December quarter.
Despite these challenges, ON Semiconductor remains profitable, with a gross profit margin of 46.3% and an operating income margin of 30.22% for the last twelve months as of Q2 2024. These strong margins underscore the company's operational efficiency, which could help it navigate the anticipated short-term headwinds.
Investors seeking a more comprehensive analysis can access additional InvestingPro Tips, with 12 more tips available for ON Semiconductor on the platform.
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