Stifel analyst Tore Svanberg raised the price target for ON Semiconductor (NASDAQ:ON) from $75 to $80. With the inventory correction largely complete but demand recovery still developing, the analyst maintained the Hold rating on the stock.
• ON Semiconductor shares are consolidating. What’s the outlook for ON shares?
Cautious About Demand Recovery Pace
The analyst cites the need for greater visibility into the recovery across its Industrial and Automotive businesses following the recent inventory correction.
At the same time, ON Semi’s growing design-win pipeline across AI/data centers, electric vehicles and energy infrastructure could support stronger margins and provide exposure to a $213 billion total addressable market by 2030, notes the analyst.
The analyst expects the company to report third-quarter revenue slightly above its $1.70 billion estimate, with non-GAAP EPS of 87 cents (versus consensus of 88 cents).
For the fourth quarter, Svanberg forecasts revenue of $1.73 billion, in line with Street consensus, along with non-GAAP EPS of 97 cents versus the 95 cents consensus. The projected December-quarter revenue growth is also above the five-year seasonal average decline of 1.8%.
Estimates Double-Digit Long-Term Growth
The analyst expects the company to eventually deliver its 12%-14% long-term revenue CAGR target, aided by its diversified customer base and presence across multiple end markets.
Svanberg also believes On Semi’s business transformation and leaner cost structure have improved its margin floor during downturns.
Despite the improving backdrop, the analyst remains cautious about the timing and strength of further gross-margin expansion following the 80-basis-point sequential improvement.
Higher costs could weigh on margins in the near to medium term, while management has yet to see a meaningful Automotive inventory replenishment cycle, adds the analyst.
ON Stock Price Activity: ON Semiconductor shares were up 1% at $85.76 at the time of publication on Monday.
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