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On Tuesday, Evercore ISI affirmed its positive stance on ON Semiconductor (NASDAQ:ON), maintaining an Outperform rating and a $107.00 price target, significantly above the current trading price of $64.51.
According to InvestingPro analysis, the stock appears undervalued, with strong financial health metrics supporting the bullish outlook. The endorsement follows a recent investor dinner with ON Semiconductor's top executives, including CEO Hassane El-Khoury, CFO Thad Trend, and VP of Corporate Development and Investor Relations Parag Agarwal.
The management team at ON Semiconductor conveyed expectations of an L-shaped recovery in the near term, a scenario which analysts believe is already factored into market expectations. With a market capitalization of $27.47 billion and a P/E ratio of 15.7, the company maintains a solid market position. Evercore ISI emerged with a stronger long-term outlook for the company, citing several key factors.
These include the company's ongoing turnaround efforts, the potential for significant revenue generation from its Treo platform, and the perceived overstatement of risks associated with the Chinese market over the next three years.
Additionally, the firm's analysts highlighted ON Semiconductor's gross margin resilience and a clear path to achieving 53% gross margin levels. They also noted the company's current free cash flow (FCF) per share and net capital return per share, which are outpacing earnings per share (EPS).
Looking ahead, Evercore ISI projects an improvement in ON Semiconductor's gross margins by 900 basis points by the end of 2026, from the current 45.8% level, driven by a cyclical recovery and a reduction in supply chain inventories to below-normal levels. Furthermore, the company is expected to decrease its bridge inventory from 100 days to 70 days by the end of 2026, which should contribute to a significant growth in free cash flow per share.
The firm anticipates a 64% compound annual growth rate (CAGR) in FCF per share over a five-year period, increasing from $0.92 in 2023 to nearly $11 by 2028. The reiterated Outperform rating and $107 price target reflect Evercore ISI's confidence in the company's financial trajectory and strategic initiatives. For deeper insights into ON Semiconductor's valuation and growth potential, including 11 additional ProTips and comprehensive financial analysis, visit InvestingPro.
In other recent news, ON Semiconductor has been the subject of several key developments. The company announced strengthened ties with Denso, with plans to support technologies for autonomous driving and driver assistance. This collaboration includes Denso's intent to acquire an undisclosed quantity of ON Semiconductor shares.
ON Semiconductor also received an Overweight rating from Wells Fargo (NYSE:WFC), which cited optimism towards the company's growth prospects, particularly in the silicon carbide market. The firm's analysis projects significant acceleration in this area by 2025.
In addition, Loop Capital initiated coverage on the company, assigning a Buy rating with a price target of $95. They highlighted ON Semiconductor's strong position in the automotive market.
The company has also been making advancements with its Treo Platform. They have already sampled 10 Stock Keeping Units, with a plan to double this figure by mid-2025.
Finally, several analyst firms, including Needham, Deutsche Bank (ETR:DBKGn), and Goldman Sachs, maintained a Buy rating for ON Semiconductor. Despite expectations of flat revenue, an increase in automotive sales in the low to mid-single digits is forecasted for the fourth quarter.
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