ON Semiconductor Corp ON reported forecast-beating second-quarter results Monday and guided to an in-line third quarter.
The ON Semiconductor Analysts: Rosenblatt Securities analyst Kevin Cassidy maintained a Buy rating on On Semiconductor shares and increased the price target from $30 to $35.
Morgan Stanley analyst Craig Hettenbach maintained an Underweight rating and $16 price target.
Raymond James analyst Chris Caso reiterated an Outperform rating and nudged the price target from $24 to $25.
Benchmark analyst Ruben Roy maintained a Buy rating and increased the price target from $24 to $28.
Why Roseblatt Recommends ON Semiconductor: Gross margin expansion is likely to continue organically through 2021, based on improving fab utilization and a richer product mix, Cassidy said in a note.
"This, followed by better than expected 300mm East Fishkill production yields, drive upside to our GM estimates in 2022," the analyst said.
Among segments, the computing and industrial end markets more than offset the expected automotive weakness, he said.
ON Semiconductor said the automotive sector should operate at full production exiting the third quarter, according to Rosenblatt.
With the recently acquired East Fishkill 300mm fab ahead of production transition schedule, the company is optimizing its manufacturing network and is exploring the potential sale of the 6-inch fab in Niigata, Japan, the analyst said.
"We continue recommending the ON shares for their improving cost structure and product lineup," Cassidy said.
Morgan Stanley Says Revenue Is Main EPS Driver Ahead: ON Semiconductor is beginning to improve, but there is caution surrounding each of the positives, Hettenbach said in a note.
Despite ON Semiconductor's gross margin bottoming, it was still down 600 basis points year-over-year in the June quarter, the analyst said.
The EPS upside was driven by revenue outperformance and significant opex reductions, and the company cannot continue to trim expenditures for a prolonged period without jeopardizing long-term growth, he said.
Above-average net leverage is likely to limit capital allocation options in the near-term, Hettenbach said.
Revenue is ON Semiconductor's main EPS driver going forward, the analyst said.
Raymond James Sees Stronger Free Cash Flow In 2021: ON Semiconductor's results are generally in line with peers if the company's auto exposure is adjusted, Caso said in a note.
The company is likely to experience stronger free cash flow into 2021, given expectations that it is likely to be a recovery year; the scope for stronger incremental gross margins; and elimination of COVID-related charges, the analyst said.
The positive effects are likely to be offset to some extent by the end of ON Semiconductor's temporary opex reduction efforts, he said.
Top-Line Growth To Recover In 2021, Benchmark Says: Against the backdrop of an improving near-term demand environment, ON Semiconductor's gross margin outlook and renewed focus on longer-term gross margin expansion are encouraging, Roy said in a note.
With a near-term geopolitical situation that limits third-quarter growth, modest revenue improvement will likely come near the end of the year, the analyst said.
Benchmark expects top-line growth to recover in 2021 thanks to easier comps and continuing gross margin recovery.
ON Price Action: At last check, ON Semiconductor shares were rising 3.47% to $22.68.
Related Link: Nvidia, Marvell, Monolithic Are Oppenheimer's Top Picks Ahead Of Semiconductor Earnings
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