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Investing.com - BofA Securities downgraded ON Semiconductor (NASDAQ:ON) from Buy to Neutral on Monday, while lowering its price target to $56.00 from $70.00, citing concerns about the company’s recovery trajectory. The semiconductor company, currently trading at $47.94 with a market capitalization of nearly $20 billion, is showing signs of being undervalued according to InvestingPro analysis.
The downgrade follows ON Semiconductor’s second-quarter earnings report, which revealed muted sales recovery, including missed industrial sales targets and ongoing exits from non-core segments. The company’s revenue declined 18.28% in the last twelve months, though it maintains strong financial health with a current ratio of 4.95, indicating robust liquidity. BofA also highlighted continued weakness in U.S. and European automotive markets, along with increasing reliance on the Chinese electric vehicle sector.
BofA projects that ON Semiconductor’s calendar year 2026 sales growth will likely be closer to 5% year-over-year versus the consensus estimate of 10%, given the nearly $300 million headwind from non-core business exits. These exits have not shown commensurate expansion in margins, while silicon carbide margins remain dilutive due to lower utilization.
The investment bank maintained relatively steady earnings estimates due to lower operating expenses and tax rates, but applied a lower price-to-earnings multiple of 20x for calendar year 2026 estimates, down from 25x previously. This places ON Semiconductor’s valuation in the middle range between U.S. peers (26x) and European peers (15x).
BofA acknowledged that ON Semiconductor still offers significant earnings-per-share leverage and is executing on promising data center opportunities, but noted that recovery timing and data center growth are unlikely to materialize until the second half of next year, potentially leaving the stock range-bound. InvestingPro data reveals that management has been actively buying back shares, potentially signaling confidence in the company’s long-term prospects. For deeper insights into ON Semiconductor’s valuation and growth potential, including 12 additional exclusive ProTips, visit InvestingPro.
In other recent news, ON Semiconductor reported its second-quarter 2025 earnings, revealing an earnings per share (EPS) of $0.53, which met market expectations. The company also posted revenue of $1.47 billion, slightly surpassing the anticipated $1.45 billion, representing a 1.6% increase quarter-over-quarter but a 15.4% decrease year-over-year. Needham raised its price target for ON Semiconductor to $58.00 from $50.00, maintaining a Buy rating, citing the company’s solid results and guidance that exceeded Street expectations. Mizuho (NYSE:MFG), however, lowered its price target to $68.00 from $72.00, while still maintaining an Outperform rating, due to expected declines in gross margins. Stifel reiterated a Hold rating, maintaining a $50.00 price target, noting the company’s revenue exceeded their estimate by 1.3%. Goldman Sachs reiterated a Neutral rating with a price target of $60.00, after results aligned with market expectations for both revenue and earnings per share. These developments reflect a range of analyst opinions on ON Semiconductor’s performance and future prospects.
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