Mizuho cuts ON Semiconductor price target to $71 from $85

On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its financial outlook for ON Semiconductor (NASDAQ:ON), reducing the price target from $85.00 to $71.00, while retaining an Outperform rating on the stock. Currently trading at $47.04, the stock has fallen significantly, now sitting just 1% above its 52-week low of $46.57. According to InvestingPro data, the stock appears undervalued based on its Fair Value analysis. The adjustment follows ON Semiconductor’s report of weaker than expected results for the December quarter and a guidance for the March quarter that anticipates a 19% sequential decline in revenue, significantly below the consensus estimate of a 4% decrease.

The company highlighted several challenges contributing to the downbeat forecast. These include a slowdown in electric vehicle (EV) platform rollouts and headwinds in the US-North America Auto and Industrial sectors. Additionally, the Chinese New Energy Vehicles (NEVs) market is experiencing a ramp-up. Despite these challenges, InvestingPro analysis shows ON maintains strong fundamentals with a current ratio of 3.07 and operates with a moderate debt level. The company anticipates a year-over-year decline in top-line revenue for 2025, with particular weakness in the auto and industrial segments during the first half of the year. Distribution inventory levels are expected to remain flat, while original equipment manufacturer (OEM) inventory seems elevated.

ON Semiconductor also projects a downturn in the Silicon Carbide (SiC) market for 2025, estimating a 15-20% year-over-year revenue decline due to inventory challenges, which could potentially impact Wolfspeed Inc. (NYSE:WOLF). The company’s gross margin (GM) guidance has been reduced by 530 basis points quarter-over-quarter, with factory utilization projected to drop to around 55%.

Despite these near-term obstacles and limited customer visibility in the first half of 2025, Mizuho believes ON Semiconductor’s long-term strategy remains on track. The company maintains healthy profitability with a gross margin of 45.8% and strong returns, as evidenced by a 22% return on equity. The firm expects the continued adoption of EVs to drive increased content demand and foresees upcoming design wins in Artificial Intelligence Data Centers (AI DC) and SiC applications to offer long-term growth opportunities. Consequently, while near-term estimates have been lowered, the Outperform rating suggests confidence in the company’s future prospects. For deeper insights into ON Semiconductor’s financial health and growth potential, including 16 additional ProTips and comprehensive valuation metrics, visit InvestingPro.

In other recent news, ON Semiconductor has experienced several adjustments in its stock price targets. Evercore ISI has lowered its target to $75, but maintains an outperform rating. The firm expects a revenue downturn for the company’s March 2025 quarter, but holds a positive view on the risk-reward ratio for the company at its current valuation.

Similarly, Citi has cut its target for ON Semiconductor to $52, maintaining a neutral stance. This decision was influenced by disappointing financial results and a forecast for the first quarter of 2025 that falls short of market expectations.

Jefferies also reduced its price target for ON Semiconductor to $85, while retaining a buy rating. Despite the company’s lower-than-expected guidance, Jefferies praised the company’s proactive measures to streamline its operations.

ON Semiconductor recently reported fourth-quarter earnings that fell short of analyst expectations and provided weak guidance for the first quarter of 2025. The company posted adjusted earnings per share of $0.95 for the fourth quarter, with revenue reported at $1.72 billion. These recent developments reflect the broader challenges faced by the semiconductor industry.

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