On Tuesday, Goldman Sachs (NYSE:GS) adjusted its outlook on ON Semiconductor (NASDAQ:ON), a leading semiconductor supplier, by lowering its price target to $81 from the previous $91 while maintaining a Buy rating on the stock.
The revision reflects a more conservative estimate for the company's revenue and operating earnings per share (EPS) for the years 2024 to 2026. Goldman Sachs now anticipates, on average, a 3% decrease in revenue and a 5% reduction in operating EPS for ON Semiconductor during this period.
The adjustment is based on recent developments in the electric vehicle (EV) sector, which have led to a moderated revenue forecast for Silicon Carbide (SiC) components, a key product line for ON Semiconductor.
Despite the reduced expectations and an admission of an overestimation of ON's performance in the past nine months, Goldman Sachs remains optimistic about the stock's future performance.
Goldman Sachs acknowledges the upcoming earnings report, scheduled for April 29, may not boost investor confidence regarding short-term prospects. However, the firm's analysts believe that the stock presents a favorable risk/reward profile. This perspective is outlined in their updated bull/bear framework, which supports the decision to sustain the Buy rating.
The revised price target of $81 suggests a potential 23% upside from the stock's current trading levels. Goldman Sachs has provided additional insights into the estimate changes and the rationale behind the updated bull/bear framework in their full note to investors.
The firm's stance is based on a comprehensive analysis of ON Semiconductor's market position and future growth potential in the evolving semiconductor industry.
InvestingPro Insights
As ON Semiconductor (NASDAQ:ON) navigates the semiconductor industry's dynamic landscape, real-time data from InvestingPro offers additional context to Goldman Sachs' recent outlook adjustment. The company's market capitalization stands at $28.22 billion, with a P/E ratio of 12.84, indicating that the stock is trading at a low price relative to near-term earnings growth potential. Despite analysts revising earnings downwards and anticipating a sales decline for the current year, ON Semiconductor maintains a strong position in the Semiconductors & Semiconductor Equipment industry.
InvestingPro Tips suggest that while the company's net income is expected to drop this year, its cash flows can sufficiently cover interest payments, and its liquid assets exceed short-term obligations. This financial resilience, coupled with a moderate level of debt, underscores the firm's robustness amid market fluctuations. Moreover, analysts predict the company will remain profitable this year, reflecting a positive outlook over the longer term. It's noteworthy that ON Semiconductor has been profitable over the last twelve months and has provided a strong return over the last five years, although it does not pay a dividend to shareholders.
Investors looking to delve deeper into ON Semiconductor's financial health and future prospects can find additional insights and tips on InvestingPro. For those considering a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With over 23 analysts providing their expertise on the company, InvestingPro offers a wealth of information to help make informed investment decisions.
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