ON Semiconductor At 'Cyclical Trough' After Q1 Earnings Beat, Analyst Sees 25% Upside

ON Semiconductor Corp ON stock was trading higher by more than 4% on Monday after the Scottsdale, Arizona-based company reported a first-quarter earnings beat.

The company, currently trading at $70.82 a share, delivered a 3.85% surprise on EPS and a 0.70% surprise on revenue.

ON Semiconductor’s Q1 revenue came in at $1.86 billion. Adjusted EPS was reported as $1.08, driven by stability in traditional industrial segments.

JPMorgan analyst Harlan Sur remains bullish, despite ON Semiconductor’s navigating a challenging cyclical trough.

Sur’s price target is $85 for December 2024 and implies a significant upside potential. His bullish outlook is based on the semiconductor company’s ability to weather the current market challenges and emerge stronger in the second half of the year.

Q2 outlook remains cautious. Revenues are expected to decline 7% Q/Q due to “broad-based end market weakness and soft China orders post CNY.”

But Sur sees this as a temporary setback.

“After the negative revenue reset, we believe Jun-Qtr represents the cycle bottom for ON,” anticipating a rebound in the H2 of the year, he said.

Sur attributes his optimism toward the second half of the year to “stabilization in its core silicon semiconductor business combined with a stronger 2H silicon carbide business as the EV new model pipeline unfolds (Europe/China OEMs).”

He also points to the company’s silicon carbide (SiC) manufacturing ramp as a sign of resilience and long-term growth potential.

Multiple tailwinds for gross margins going forward include:

• “unwinding of 100bps of EFK headwinds,
• cost savings from prior fab consolidations ($160M), and
• manufacturing utilization recovery.”

Overall, Sur’s confidence in ON Semiconductor’s future is a testament to the company’s strategic positioning and execution capabilities, making it a compelling investment opportunity despite near-term headwinds.

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