JPMorgan lowers ON Semiconductor stock price target on market weakness

On Tuesday, JPMorgan adjusted its outlook ON Semiconductor (NASDAQ: ) stock, lowered its price target to $85 from $90 while maintaining a Neutral rating on the stock. ON Semiconductor's first-quarter results exceeded consensus market expectations, especially in the industrial field.

However, the company's second-quarter revenue guidance showed a quarter-on-quarter decrease of 7%, lower than market expectations. The forecast, attributed to broad end-market weakness and reduced orders from China after the Lunar New Year, is in line with guidance from peer STMicroelectronics.

Still, JPMorgan predicts that ON Semiconductor's June quarter may be the low point of the cycle, with revenue expected to recover in the second half of the year. The company expects ON Semiconductor's core silicon semiconductor business to stabilize and performance in the silicon carbide (SiC) segment to be stronger due to the launch of new electric models, especially from European and Chinese manufacturers. .

ON Semiconductor reported a decrease in order extension requests under long-term supply agreements, primarily for silicon carbide products, and noted emerging positive trends, including increased orders for its non-long-term supply agreement business, which primarily consists of silicon semiconductors. The company plans to maintain a manufacturing utilization rate of 65%, indicating stable order trends, and expects customer inventory levels to normalize.

Looking ahead, the company's lead times are down slightly sequentially, but are still longer at 40-41 weeks, providing visibility into the second half of the year. ON Semiconductor is confident that it will double the industry growth rate of its SiC business in 2024, but it has not yet provided the latest industry growth forecast.

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The company continues to make progress toward operational goals, including expanding silicon carbide manufacturing, increasing production and margins, and executing on its long-term growth strategy. The company is transitioning to 200mm wafers and expects revenue to grow in 2025.

ON Semiconductor's design win pipeline grew 30% sequentially, supporting long-term revenue CAGR of 10-12%. The company also reported new product revenue growth of 9% year-over-year and healthy gross margins.

JPMorgan expects total revenue to decline by a low-teens percentage through 2024. Gross margin is expected to benefit from several factors, including a 100 basis point reversal in currency fluctuations, $160 million in cost savings from previous plant consolidations, and improved manufacturing utilization.

Distribution inventory levels are low, currently 8 weeks, higher than last quarter's 7.2 weeks, and there are plans to increase inventory levels to 9 weeks in the next few quarters. As a result, J.P. Morgan revised its forward forecast for ON Semiconductor and lowered its December 2024 price target.

Investment Professional Insights

As ON Semiconductor navigates market volatility and focuses on recovery in the second half of the year, InvestingPro data and tips provide valuable perspective for investors monitoring the company's performance. The company has a market capitalization of $30.44 billion and a forward P/E ratio of 13.86, which is low relative to recent earnings growth, which could indicate an attractive valuation for investors considering the company's growth potential.

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Although revenue declined slightly over the past 12 months, down 2.22%, ON Semiconductor maintained a strong gross margin of 46.86%. The company's operating efficiency is also reflected in its high operating profit margin of 31.6%. Additionally, the company showed solid returns last week with a total price return of 14.82%, indicating strong short-term investor confidence.

InvestingPro Tips suggests that ON Semiconductor is still on track to be profitable this year, although analysts have cut earnings for the period ahead and expect sales to decline this year. Additionally, the company has moderate debt levels, with liquid assets exceeding short-term debt, which can provide financial stability during uncertain times. For investors looking for more in-depth analysis and additional tips, 19 InvestingPro tips are also available and can be accessed through a subscription.Use coupon code PRONEWS24 Annual or biennial Pro and Pro+ subscriptions receive an additional 10% discount.

InvestingPro's fair value estimate of $76.89 is just below the analyst target of $85, giving investors a benchmark to evaluate the stock's potential upside. These insights can help investors make informed decisions as ON Semiconductor progresses toward its operational goals and projected SiC business revenue growth through 2025.

This article was generated with the support of artificial intelligence and reviewed by an editor. For more information, please see our terms and conditions.

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