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On Tuesday, KeyBanc Capital Markets adjusted its price target on ON Semiconductor (NASDAQ:ON) shares, reducing it to $55 from the previous $60 while maintaining an Overweight rating. The adjustment reflects the firm's revised expectations due to weaker demand trends from Tesla (NASDAQ:TSLA) and ongoing inventory reductions by auto manufacturers in the United States and Europe, excluding China. According to InvestingPro data, ON's stock has declined significantly, currently trading at $35.08, with a -50.26% return over the past six months.
The research firm's analyst cited a valuation based on 15 times the fiscal year 2026 estimated earnings per share (EPS) of $3.61. Despite the price target reduction, KeyBanc's stance remains positive, reiterating the Overweight rating for ON Semiconductor. The firm's analysis suggests that ON is trading at a forward price-to-earnings (P/E) ratio of 9 times, which is notably lower than the three-year median of 15 times. InvestingPro analysis indicates the stock is currently undervalued, with a "GOOD" overall Financial Health score. Discover 12+ additional exclusive insights and detailed valuation metrics with an InvestingPro subscription.
KeyBanc's report acknowledges several risks that could affect the ability of ON Semiconductor's stock to reach the newly set price target. These risks include potential market and macroeconomic conditions that might hinder share performance, uncertainties surrounding the recovery, duration, and decline in semiconductor end-market demand, the risk of overcapacity among semiconductor manufacturers, and company-specific execution risk.
ON Semiconductor is a prominent player in the semiconductor industry, supplying a variety of electronic components used in various applications, including automotive, industrial, and consumer electronics. The company's performance is closely tied to the health of these sectors and the broader semiconductor market.
In other recent news, ON Semiconductor has announced it will incur pre-tax non-cash impairment charges estimated between $600 million and $700 million as part of a restructuring plan. This move is expected to reduce the company’s depreciation expenses by approximately $30 million to $35 million for 2025. Meanwhile, S&P Global Ratings revised its outlook for ON Semiconductor from positive to stable, citing a deeper cyclical downturn than anticipated, which has impacted profitability. Despite the downturn, ON Semiconductor is projected to maintain solid free operating cash flow due to reduced inventory and manufacturing capacity.
In related developments, ON Semiconductor made an unsolicited proposal to acquire Allegro (WA:ALEP) MicroSystems for $35.10 per share in cash, which Allegro’s Board has deemed inadequate. This proposal is part of a broader trend of consolidation in the semiconductor industry. Additionally, UBS has flagged ON Semiconductor as experiencing significant positive shifts in investor crowding scores, indicating an increasing number of long positions among eligible funds. Investors are closely watching these developments as they could influence the competitive landscape and create new opportunities for growth in the semiconductor sector.
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