On Tuesday, TD Cowen exhibited confidence in ON Semiconductor (NASDAQ:ON) by raising the company's price target from $85.00 to $90.00, while keeping a Buy rating on the stock. The firm's decision comes despite a backdrop of uneven results from industry peers and a generally negative market sentiment, which saw ON Semiconductor's shares surge by 12% recently.
The analyst from TD Cowen acknowledged that the demand across the broader semiconductor sector has not improved significantly enough to boost growth. Despite this, the firm remains optimistic about ON Semiconductor's future due to its cautious guidance and various internal measures that are believed to place the company in a favorable position for when market conditions improve.
The report highlighted the importance of consistency for ON Semiconductor in order to strengthen investor confidence. According to TD Cowen, the company's conservative approach and the execution of strategic initiatives internally, known as self-help levers, are key factors that could support the company's performance moving forward.
ON Semiconductor surpassed its Q2 2024 guidance for revenue, non-GAAP gross margin, and non-GAAP earnings per share, with revenues of $1.74 billion, a non-GAAP gross margin of 45.3%, and an operating margin of 27.5%. This is amid a stabilization in core market demand and improvements in inventory management.
ON Semiconductor has also been expanding its portfolio. The company acquired SWIR Vision Systems to enhance its industrial and defense offerings and was named the primary supplier for Volkswagen (ETR:VOWG_p) Group's next-generation traction inverter. Analysts at Baird have raised the company's price target to $70, noting positive developments such as continued market share gains in Silicon Carbide and the introduction of new, higher-margin analog products.
However, Baird maintained a neutral rating, pointing out industry-wide risks such as inventory levels and pricing pressures. Looking ahead, ON Semiconductor projects 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. The company maintains a positive long-term outlook for the battery-powered electric vehicle market, with a significant share in China's EV market.
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