On Wednesday, CFRA reduced its rating on NASDAQ:ON shares from Buy to Sell and lowered the price target to $70 from $85. The firm's decision is based on a revised price-to-earnings (P/E) ratio of 15.5 times their 2025 earnings per share (EPS) estimate, which is under the five-year historical forward average of approximately 17 times. This adjustment reflects concerns about the competitive environment for silicon carbide (SiC).
The firm also revised its EPS forecasts for the company, decreasing its 2024 EPS estimate to $3.97 from $4.14 and its 2025 estimate to $4.53 from $5.04. The downgrade primarily addresses expectations for the sequential recovery in ON Semiconductor (NASDAQ:ON)'s automotive business, which CFRA believes may not meet consensus expectations, particularly given an uncertain end-market landscape.
CFRA's analysis indicates caution over a declining trend in long-term supply agreements as compared to forward expectations. Additionally, there is a risk that a higher inventory of SiC could become a liability if the demand for electric vehicles (EVs) does not meet expectations. The analyst notes that margins could suffer from prolonged underutilization if the automotive recovery is weaker than anticipated.
The firm also expresses growing concerns about China's potential escalation of SiC expansion plans, which could further impact ON Semiconductor's market position. These factors collectively contribute to the revised outlook and rating for the company's stock.
In other recent news, ON Semiconductor has experienced a series of notable developments. The company has been 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.
ON Semiconductor also 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.
Furthermore, ON Semiconductor 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 have also adjusted their outlook on ON Semiconductor. While TD Cowen, Mizuho, and Benchmark have maintained a Buy rating on the company's shares, they have done so 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
Recent data from InvestingPro shows that ON Semiconductor (NASDAQ:ON) is trading at a P/E ratio of 13.92, below the industry average, suggesting it may be undervalued relative to near-term earnings growth. The company's market capitalization stands at $30.41 billion, reflecting its significant presence as a prominent player in the Semiconductors & Semiconductor Equipment industry. Despite concerns over a potential sales decline this year, ON Semiconductor's financial health appears robust, with a gross profit margin of 46.83% over the last twelve months as of Q1 2024.
InvestingPro Tips indicate that ON Semiconductor's cash flows can sufficiently cover interest payments, and the company operates with a moderate level of debt. Moreover, analysts predict the company will be profitable this year, with a return on assets of 16.9% as of the last twelve months. These financial metrics may provide some reassurance to investors concerned about the company's ability to manage its financial obligations and maintain profitability amidst market uncertainties.
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