Benchmark analyst David Williams maintained ON Semiconductor Inc ON with a Buy and lowered the price target from $88 to $80.

While ON’s results were better than feared, with stabilization in the Auto market and moderate improvement in traditional Industrial, Williams noted that the outlook missed expectations on persistent inventory digestion and a tepid demand environment. 

SiC remains the key momentum driver in the near term, with convincingly strong evidence of the firm’s ability to outperform the industry growth by 2x, per the analyst. 

Although unit volume remains the wildcard, share gains across existing platforms scheduled for production this year support substantial SiC growth opportunities. 

However, with the pace of EV adoption in question and the accelerating push toward more economical models, investors are more concerned with the potential erosion of SiC content than ON seems to be, he said. 

While Williams recognized the SiC performance advantages extend to the lower-end platforms, the number of sockets is considerably reduced and will require meaningfully higher unit sales to offset the lower available content. 

The near-term growth opportunity remains positive, but the analyst is increasingly cautious about the sustainability of the mid to longer-term growth trajectory on the global SiC capacity expansion coming online and an anticipated mix shift toward lower content auto platforms over time. 

Williams projected second-quarter revenue and EPS of $1.73 billion (prior $1.81 billion) and $0.92 (prior $1.00).

Goldman Sachs analyst Toshiya Hari reiterated a Buy rating on ON Semiconductor with a price target of $89 (up from $81 prior).

ON reported a modest upside to Street’s first-quarter 2024 EPS expectations ($1.08 vs. $1.04) and provided a better-than-feared fiscal second-quarter adjusted gross margin outlook of 45.2% (mid-point). 

While the near-term outlook for the SiC business remains uncertain, Hari remained constructive on the company’s long-term growth potential given its above-average exposure to applications in secular growth, including Electrification, ADAS, Energy Infrastructure, and Factory Automation.

Hari projected second-quarter revenue and EPS of $1.71 billion and $0.93.

BofA Securities analyst Vivek Arya affirmed a Buy rating on ON Semiconductor with a price target of $80.

Arya noted that the first-quarter results were modestly better, with a better-than-expected second-quarter miss on auto inventory correction. 

The second-half visibility sounded murky, but the analyst expects industrial stabilization and EV recovery to benefit ON, with incremental upside from data center power upgrades. 

Arya expects the second quarter to be a cycle bottom, with $3.68 EPS in annualized trough proforma-EPS (4x Q2 $0.92 EPS). 

He forecasts ON’s Silicon Carbide (SiC) sales to grow about 20% YoY to $980 million, though somewhat back-half weighted.

ON maintained a mid-40’s gross margin % floor, which Arya estimated sustains through the calendar year 2024, which is impressive despite low

utilization (65% in Q1 and likely stable through calendar 2024).

He noted that SiC growth is on track, as well as diversification within key Chinese OEMs (now in the top 10 of EV OEMs vs 4-5 prior).

The calendar year 2025 gross margin % expansion levers are in place as East Fishkill (EFK) headwinds roll-off (GlobalFoundries Inc GFS foundry relationship ending in 2025), along with $160 million benefit from prior fab divestitures, Arya said.

The long-term gross margin upside is set at 53% from 43% levels today, perhaps the highest among peers, the analyst added.

Arya projected second-quarter revenue and EPS of $1.73 billion (prior $1.76 billion) and $0.92.

ON Semiconductor stock lost over 9% in the last 12 months. Investors can gain exposure to the stock via First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN and EA Series Trust Strive U.S. Semiconductor ETF SHOC.

Price Action: ON shares are trading lower by 0.09% at $70.76 at the last check Tuesday.