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On Monday, Jefferies made adjustments to its outlook on ON Semiconductor (NASDAQ:ON), reducing the stock’s price target from $100.00 to $85.00 while retaining a Buy rating. The stock, currently trading at $47.04, has declined 28% over the past six months. According to InvestingPro analysis, ON Semiconductor appears undervalued based on its Fair Value estimate. The firm’s analysts cited lower-than-expected guidance, with a downturn evident across all end markets and regions. This broad weakness has led to decreased utilization rates and an impact on gross margins (GMs), which currently stand at 45.8%.
The analysts acknowledged the disappointing results but expressed approval of the company’s proactive measures to streamline its operations rather than simply waiting for a market recovery. They pointed out that revenue and GM reductions are being counterbalanced by further restructuring efforts, including operational expenses and fabrication capacity adjustments planned for the year. InvestingPro data shows the company maintains a strong financial position with a current ratio of 3.07, indicating ample liquidity to support these restructuring initiatives. Subscribers to InvestingPro can access 15 additional key insights about ON Semiconductor’s financial health and market position.
Despite the severity of the current downcycle, Jefferies remains optimistic about the potential for significant upside in ON Semiconductor’s stock once the business climate improves. The analysts believe that the company’s strategic actions during this challenging period position it well for future gains.
ON Semiconductor’s recent performance reflects the broader challenges faced by the semiconductor industry, with multiple companies experiencing similar difficulties. The steps taken by ON Semiconductor aim to mitigate these challenges and prepare the company for a rebound as market conditions eventually turn favorable.
Investors and market watchers will be keeping a close eye on ON Semiconductor’s progress and the effectiveness of its restructuring initiatives as the industry navigates through this turbulent phase. The company’s efforts to adapt and streamline in response to the current environment may set a precedent for others in the sector facing comparable obstacles.
In other recent news, semiconductor company onsemi reported its fourth-quarter earnings, revealing a shortfall in both earnings and revenue compared to analyst expectations. The company posted adjusted earnings per share of $0.95, missing the consensus estimate of $0.97, while revenue was reported at $1.72 billion, below the anticipated $1.76 billion. These figures also reflected a decrease from the $2.1 billion revenue reported in the same quarter of the previous year.
Onsemi’s guidance for the first quarter of 2025 was also notably lower than Wall Street’s estimates. The company forecasts adjusted earnings per share between $0.45 and $0.55, significantly lower than the consensus of $0.89. Revenue is expected to be in the range of $1.35 billion to $1.45 billion, short of the $1.69 billion analysts were predicting.
Despite the less than stellar results, onsemi’s CEO Hassane El-Khoury expressed confidence in the company’s ability to navigate the current market downturn. The company also highlighted its strong free cash flow generation for the full year 2024, which tripled year over year to $1.2 billion, with 54% of this free cash flow returned to shareholders through share repurchases. For the fourth quarter, onsemi reported a GAAP gross margin of 45.2% and a non-GAAP gross margin of 45.3%.
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