On Monday, Evercore ISI updated its price target for ON Semiconductor (NASDAQ:ON), increasing it slightly to $105.00 from the previous $104.00. The firm continues to recommend the stock with an Outperform rating, suggesting confidence in the company's ongoing transformation. The semiconductor manufacturer has been noted for its impressive turnaround, which includes a significant expansion of its gross margins.
Since December 2020, ON Semiconductor has seen its gross margins grow by 1,200 basis points, moving from a low of 30% at 65% utilization to a current trough gross margin of 45%. This improvement is a key highlight of the company's progress. Evercore ISI expects this positive trend to continue, with ON Semiconductor still in the "middle innings" of its transformation journey.
Several factors are anticipated to contribute to the company's further margin expansion over the next 12 months. These include operational efficiencies at its East Fishkill facility, which are expected to offset a 100 basis points dilution in 2024. Additionally, the monetization from the divestment of a fabrication plant is projected to reduce fixed costs by $160 million throughout 2025.
Looking ahead, Evercore ISI projects a gross margin of 53% for ON Semiconductor by the year 2026, indicating a bullish outlook for the company's financial performance. This strategic forecast underscores the analyst's belief in the company's potential for continued improvement and growth in the semiconductor industry.
In other recent news, ON Semiconductor has seen several significant developments. The company's shares were downgraded by CFRA from Buy to Sell, with the price target lowered to $70 due to concerns about the competitive environment for silicon carbide. CFRA also revised its earnings per share forecasts for the company, reflecting a more cautious outlook for ON Semiconductor's automotive business.
In a similar move, Citi downgraded the company's stock from Buy to Neutral and reduced the price target from $85 to $77, citing concerns over a slowdown in the Silicon Carbide market. This sector contributes to 12% of the company's projected 2024 sales and is expected to face declining growth and prices.
ON Semiconductor also completed the acquisition of SWIR Vision Systems, aiming to enhance its sensor technology. The integration of SWIR's advanced colloidal quantum-dot technology into ON Semiconductor's CMOS sensors could transform imaging systems across various industries.
Furthermore, ON Semiconductor announced a significant restructuring plan under its "Fab Right" strategy, which includes the consolidation of nine sites and a reduction of approximately 1,000 employees globally. The process is expected to be completed by 2025.
Several analyst firms, including TD Cowen, Mizuho, and Benchmark, have maintained a Buy rating on the company's shares, albeit with reduced price targets, while Rosenblatt Securities has kept a Neutral rating. These recent developments provide insights into the evolving landscape surrounding ON Semiconductor.
InvestingPro Insights
As ON Semiconductor (NASDAQ:ON) navigates its transformation journey, real-time data from InvestingPro provides a comprehensive snapshot of the company's current financial health. The company's market capitalization stands at $33.95 billion, reflecting its substantial presence in the semiconductor industry. Despite a recent downturn in stock price, with a -9.26% return over the last week, ON Semiconductor trades at an attractive P/E ratio of 15.56, indicating potential value relative to near-term earnings growth. Additionally, the company's PEG ratio, a metric that combines the P/E ratio with expected earnings growth, is at 0.7, suggesting that the stock may be undervalued given its growth projections.
InvestingPro Tips highlight that ON Semiconductor, while expected to face a sales decline in the current year, operates with a moderate level of debt and has liquid assets that exceed its short-term obligations. The company's ability to cover interest payments with its cash flows is a reassuring sign of financial stability. For investors looking for more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/ON, offering insights into the company's performance and prospects. To access these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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