On Thursday, Stifel maintained a Hold rating on ON Semiconductor (NASDAQ:ON) with a steady price target of $72.00. According to the firm's analysis, the company is expected to meet its third-quarter estimates, with a potential slight upside, driven by robust automotive demand in China. This outlook aligns with insights from industry peers such as Texas Instruments (NASDAQ:TXN) and Tesla (NASDAQ:TSLA), underpinning the projected $1.75 billion in revenue, a 0.9% increase quarter over quarter.
The firm anticipates that guidance may align with their estimates, with a possible modest downside, given the current economic landscape. ON Semiconductor is positioned to possibly guide for sequential growth, although it is expected to be moderate. However, the analyst noted that external factors, specifically outside of China's automotive sector and general industrial market data, show signs of weakness, which could tilt the scales downward.
Despite near-term macroeconomic uncertainties, ON Semiconductor's management has highlighted positive aspects of the company's Silicon Carbide (SiC) portfolio during the previous earnings call. The company is projected to grow twice as fast as the overall SiC market in the calendar year 2024, according to a bottom-up analysis. Furthermore, ON Semiconductor's unit growth is expected to double that of the Battery Electric Vehicle (BEV) unit growth.
The firm's reiteration of the Hold rating and the 12-month price target of $72 is based on a 15.3 times the projected earnings for the calendar year 2025. The target reflects the firm's cautious optimism about ON Semiconductor's performance in the face of mixed market signals and the company's strategic positioning within the SiC market.
In other recent news, ON Semiconductor has seen various adjustments from analysts. Mizuho Securities lowered its price target from $87 to $85, maintaining an Outperform rating. This followed a slight decrease in revenue and earnings per share estimates for the December quarter, while fiscal years 2025 and 2026 estimates were raised. The firm highlighted ON Semiconductor's strong position in the electric vehicle platform and emerging opportunities in data centers as key factors supporting the positive outlook.
Board member Atsushi Abe resigned after a 13-year tenure, with the company stating the resignation was not due to disagreements with its operations, policies, or practices. The process for filling this vacancy remains unclear.
ON Semiconductor'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.
The company has also expanded 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. These are recent developments in the ongoing story of ON Semiconductor.
InvestingPro Insights
Recent data from InvestingPro adds depth to Stifel's analysis of ON Semiconductor. The company's market capitalization stands at $29.76 billion, with a P/E ratio of 15.42, suggesting a relatively moderate valuation compared to some high-growth tech stocks. This aligns with Stifel's cautious optimism and Hold rating.
InvestingPro Tips highlight ON's position as a "prominent player in the Semiconductors & Semiconductor Equipment industry," which supports the firm's focus on the company's Silicon Carbide portfolio and its potential for growth. However, another tip indicates that "analysts anticipate sales decline in the current year," which may explain Stifel's modest expectations for guidance and sequential growth.
The company's financial health appears solid, with InvestingPro noting that "cash flows can sufficiently cover interest payments" and "liquid assets exceed short term obligations." These factors could provide ON Semiconductor with stability as it navigates the uncertain economic landscape mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips that could provide further insights into ON Semiconductor's market position and financial outlook.
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