On Monday, CFRA analyst Angelo Zino upgraded shares of ON Semiconductor (NASDAQ:ON) from Sell to Hold, adjusting the price target upward to $80.00 from the previous $70.00. This revision reflects a valuation based on a near historical price-to-earnings (P/E) ratio of 17 times the firm's 2025 earnings per share (EPS) estimate. The analyst has also increased the EPS forecast for 2024 to $4.08, up from $3.97, and for 2025 to $4.73 from $4.53.
The company reported its second-quarter earnings per share at $0.96, which surpassed the consensus estimate by $0.92. However, sales declined by 17%, which was in line with expectations.
The decrease was noted across key market segments, with industrial sales down by 23% and automotive sales by 15%, while other markets experienced a 15% drop. Gross margin suffered as well, contracting by 210 basis points to 45.3%, primarily due to lower volume and utilization rates.
Despite the downturn in sales and margin compression, ON Semiconductor is managing the challenges in the automotive and industrial sectors, which account for 79% of its sales, better than initially expected.
The company has been able to maintain margins in the face of reduced utilization and is working towards improving channel inventories. The analyst highlighted the company's strategy for content growth and total addressable market (TAM) expansion through new product launches as positive factors.
ON Semiconductor has indicated stable trends for its long-term supply agreements, which have a lifetime value of $14.7 billion and $4.4 billion that can be shipped over the next twelve months. Moreover, the company expects to outgrow the silicon carbide (SiC) market by two times in 2024. Despite these optimistic trends, the analyst expressed caution regarding the increasing competitive pressures from China.
In other recent news, ON Semiconductor has seen several significant developments. The company's stock was downgraded from Buy to Sell by CFRA, which also reduced its price target to $70, citing concerns about the competitive environment for silicon carbide (SiC).
CFRA also revised its earnings per share (EPS) forecasts for the company, indicating caution over a declining trend in long-term supply agreements and potential risks related to a higher inventory of SiC.
ON Semiconductor was also downgraded from Buy to Neutral by Citi due to concerns over a slowdown in the Silicon Carbide market, which contributes to 12% of the company's projected 2024 sales. Citi also lowered the price target from $85.00 to $77.00, applying a reduced multiple of 16 times the projected 2025 earnings per share.
The company completed the acquisition of SWIR Vision Systems, a strategic move to enhance its sensor technology. The integration of SWIR's advanced colloidal quantum-dot technology into ON Semiconductor's CMOS sensors is expected to transform imaging systems across various industries.
ON Semiconductor has also announced a significant restructuring plan under its "Fab Right" strategy. This includes the consolidation of nine sites and a reduction of approximately 1,000 employees globally, with the process expected to be completed by 2025.
Several analyst firms, including TD Cowen, Mizuho, and Benchmark, have maintained a Buy rating on the company's shares, albeit with reduced price targets. Meanwhile, Rosenblatt Securities has kept a Neutral rating, also reducing the stock's price target. These recent developments provide insights into the evolving landscape surrounding ON Semiconductor.
InvestingPro Insights
In light of the recent analysis by CFRA, current data from InvestingPro provides additional context for investors considering ON Semiconductor (NASDAQ:ON). The company's market capitalization stands at $34.2 billion, with a P/E ratio of 15.44, indicating that the stock is trading at a discount relative to its near-term earnings growth potential. This aligns with the CFRA analyst's adjusted price target based on a historical P/E ratio and improved earnings estimates.
InvestingPro Tips suggest that while the stock has experienced significant volatility, with a price total return of -9.26% over the last week, it maintains a robust position in the Semiconductors & Semiconductor Equipment industry. The company's liquid assets surpass short-term obligations, and it operates with a moderate level of debt, which may reassure investors about the company's financial health.
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