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Tuesday, ON Semiconductor shares (NASDAQ:ON), currently trading at $47.04 and near its 52-week low of $46.57, faced a new price target set by Needham, now at $57, down from the previous $66, while the firm sustained a Buy rating on the stock. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics. The adjustment follows ON Semiconductor’s forecast for the first quarter of 2025, which was significantly lower than market expectations, primarily due to ongoing demand weakness and inventory issues.
The company anticipates a 19% decrease in revenue for the first quarter of 2025, with the automotive sector expected to see a roughly 25% quarter-over-quarter decline, largely due to a slowdown in China. The industrial sector is also projected to drop by 4% quarter-over-quarter, attributed to the broader macroeconomic weakness. This aligns with InvestingPro data showing revenue already declined 11.5% in the last twelve months, though the company maintains a solid gross profit margin of 45.8%.
Gross margins are also expected to contract by 530 basis points at the midpoint in the first quarter, affected by under absorption, underutilization, and an unfavorable product mix. Needham predicts that these margin pressures will persist throughout the year.
Furthermore, ON Semiconductor’s management has indicated a strategic shift away from price-sensitive markets, with an estimated $400 million in non-core business exits planned throughout the calendar year 2025. Despite current challenges, InvestingPro reports strong financial health metrics and 14 additional real-time insights available for subscribers, including detailed analysis of the company’s strategic positioning and growth potential.
Needham’s revised price target is based on a 17x multiple of the significantly reduced CY26 earnings per share (EPS) estimate of $3.25. Despite the lowered forecasts and price target, Needham’s Buy rating suggests a continued positive outlook on ON Semiconductor’s stock.
In other recent news, ON Semiconductor’s financial outlook has been revised by several analyst firms following its report of lower-than-expected earnings for the fourth quarter and a disappointing guidance for the first quarter of 2025. Mizuho (NYSE:MFG) Securities adjusted the price target for the company from $85 to $71, while maintaining an Outperform rating. Evercore ISI also reduced the target to $75 from $107, but kept an Outperform rating. Citi revised the price target to $52 from $77, maintaining a Neutral rating. Lastly, Jefferies adjusted the target from $100 to $85, retaining a Buy rating.
These adjustments come in the wake of ON Semiconductor’s report of weaker than anticipated results for the December quarter, and a guidance for the March quarter that anticipates a significant decline in revenue. The company cited several challenges contributing to this forecast, including a slowdown in electric vehicle rollouts and headwinds in the US-North America Auto and Industrial sectors. Additionally, the Chinese New Energy Vehicles market is experiencing a ramp-up.
Despite these near-term obstacles, analysts from Mizuho and Evercore ISI believe ON Semiconductor’s long-term strategy remains on track, expecting the continued adoption of electric vehicles to drive increased content demand and foreseeing upcoming design wins in Artificial Intelligence Data Centers and Silicon Carbide applications to offer long-term growth opportunities. On the other hand, Citi and Jefferies analysts anticipate that the company’s sales in key segments are nearing a trough, which has been factored into the new price target.
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