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On Thursday, Stifel analysts adjusted their outlook on ON Semiconductor (NASDAQ:ON), lowering the 12-month price target from the previous $52.00 to $42.00, while reaffirming a Hold rating on the stock. Currently trading at $34.25, InvestingPro analysis suggests the stock is undervalued. The revision reflects concerns over the broader macroeconomic environment and specific challenges within the automotive sector, which is a significant market for the semiconductor company.
The Stifel analysts have expressed that their cautious stance has been consistent over recent quarters due to the automotive market’s persistent weaknesses. This sector is particularly important for ON Semiconductor, and recent indicators suggest that the market may continue to struggle into the calendar year 2024. The company’s stock has reflected these challenges, with InvestingPro data showing a significant 50.5% decline over the past six months.
In addition to the automotive sector’s influence, ON Semiconductor’s gross margins are facing pressure. While the company maintains a healthy gross margin of 45.4%, the analysts noted that the company’s fabrication facilities are currently underutilized, which is impacting margins negatively in the near term. Moreover, the costs associated with ramping up new production capabilities, such as Silicon Carbide (SiC) and the East Fishkill facility, are contributing to the financial strain. Despite these challenges, InvestingPro data indicates the company maintains strong liquidity with a current ratio of 5.06 and operates with moderate debt levels.
The revised price target of $42 is based on a 12.7 times price-to-earnings (P/E) multiple, which is projected for the calendar year 2026. This adjustment takes into account the aforementioned factors that are expected to influence the company’s financial performance in the coming years.
ON Semiconductor’s stock will continue to be monitored by Stifel as the market conditions evolve and the company navigates the challenges within its industry. The Hold rating suggests that Stifel analysts recommend investors maintain their current position in the stock without increasing their stake at this time.
In other recent news, onsemi has withdrawn its proposal to acquire Allegro (WA:ALEP) MicroSystems, deciding to focus on enhancing shareholder value through its existing share repurchase program. This move comes after onsemi determined there was no actionable path forward with Allegro’s Board of Directors. In light of this strategic pivot, onsemi plans to concentrate on its core growth initiatives, particularly in the automotive, industrial, and AI data centers sectors. Additionally, S&P Global Ratings revised its outlook for onsemi to stable due to weaker-than-expected profitability, projecting a revenue decline of 15%-17% in 2025. The company is expected to maintain solid free operating cash flow despite the downturn, aided by inventory reductions and cost-cutting measures. KeyBanc Capital Markets also adjusted its price target for onsemi to $55 from $60, maintaining an Overweight rating, citing weaker demand trends and inventory reductions in the automotive sector. Meanwhile, onsemi faces potential tariff challenges as China has imposed higher tariffs on U.S.-origin chips, affecting companies with domestic fabrication plants. Investors continue to monitor these developments closely, especially as the semiconductor industry grapples with complex supply chain dynamics and market conditions.
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