On Tuesday, Wells Fargo (NYSE:WFC) adjusted its outlook on ON Semiconductor (NASDAQ:ON), reducing the stock's price target from $110.00 to $95.00. The firm retained its Overweight rating on the shares, despite acknowledging the stock's underperformance year-to-date. ON Semiconductor's shares have seen a decline of approximately 27% compared to the Semiconductor Index (SOX), which has experienced a rise of around 5%.
The reassessment by Wells Fargo is a response to tempered expectations for Silicon Carbide (SiC) demand in the current year, primarily driven by a decrease in Tesla (NASDAQ:TSLA)'s production, which has not been compensated by other Original Equipment Manufacturers (OEMs). Tesla is estimated to be responsible for around 55% of the global SiC demand. The lowered price target now reflects a valuation of roughly 22 times the next twelve months' non-GAAP earnings excluding stock-based compensation (SBC).
Wells Fargo's analysis indicates a revision of estimates to align with these market trends. The firm's maintained Overweight stance is based on two key beliefs: the potential for ON Semiconductor's shares to experience a positive re-rating and the projection of a revenue rebound in the second half of fiscal year 2025.
The semiconductor industry has been facing various challenges, and ON Semiconductor's performance reflects the impact of these industry-wide shifts. The Wells Fargo report suggests that while the short-term outlook has been adjusted to accommodate current market dynamics, there remains confidence in the stock's ability to recover and grow in the longer term.
InvestingPro Insights
Adding to the analysis from Wells Fargo, recent data and insights from InvestingPro provide a deeper look into ON Semiconductor's financial health and market performance. The company's market capitalization stands at $26.07 billion, with an attractive price-to-earnings (P/E) ratio of 12.05, which is even more compelling when adjusted for the last twelve months as of Q4 2023, at 11.55. This indicates a low valuation relative to near-term earnings growth, a point that could interest value investors.
Despite the challenges outlined by Wells Fargo, ON Semiconductor remains a prominent player in its industry, and its stock is currently trading near its 52-week low, which may represent a potential entry point for long-term investors. Moreover, the company's liquid assets exceed its short-term obligations, and its cash flows can sufficiently cover interest payments, reflecting a stable financial position.
InvestingPro Tips also highlight that while analysts anticipate a sales decline in the current year and expect net income to drop, the company still operates with a moderate level of debt and has been profitable over the last twelve months. Investors interested in further insights and tips, including an additional 10 tips not listed here, can explore more at https://www.investing.com/pro/ON. To gain full access to these insights, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.