ON Semiconductor Manages Profitability Against Odds, 5 Analysts Raise Forecasts As 'Inventory Health Slowly Improves'

Shares of ON Semiconductor Corp ON tanked in early trading on Tuesday, despite the company reporting upbeat second-quarter earnings.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

• Goldman Sachs analyst Toshiya Hari reiterated a Buy rating, while raising the price target from $89 to $95.
• Rosenblatt Securities analyst Kevin Cassidy maintained a Neutral rating, while lifting the price target from $70 to $75.
• JPMorgan analyst Harlan Sur reaffirmed a Neutral rating, while raising the price target from $85 to $88.
• Benchmark analyst David Williams reiterated a Buy rating, while lifting the price target to $90.
• Truist Securities analyst William Stein maintained a Buy rating, while raising the price target from $85 to $97.

Check out other analyst stock ratings.

Goldman Sachs: Contrary to concerns leading up to the results, ON Semiconductor reported solid quarterly results and guided to gross margins of 45.4% for the third quarter, Hari said in a note. The company reported revenues of $1.74 billion, down 17% year-on-year, but ahead of consensus, he added.

ON Semiconductor's non-GAAP gross margin came in at 45.3%, beating the Street by 10 basis points (bps), the analyst stated. The positives include the company's "strong competitive position in SiC and CMOS image sensors," a structural profitability improvement, and a possible re-acceleration in growth and margin expansion in 2025, he added.

Rosenblatt: The company was able to maintain gross margins above 45% "despite manufactory utilization running at 65%," Cassidy said.

"The mid-point of September revenue guidance missed consensus as management characterized the market as an ‘L-shaped’ recovery," the analyst wrote. Revenue guidance for the third quarter of $1.7 billion – $1.8 billion reflected an "ongoing inventory digestion.”

JPMorgan: ON Semiconductor surpassed expectations but delivered "another quarter of expected broad-based shipment declines, Sur said. He added, however that the first half of 2024 could mark the bottom of this cycle.

"For the 3Q outlook, the team guided revenues up 1% Q/Q, in-line with consensus expectations but better-than-feared with stabilizing business trends in key core end markets," the analyst wrote. The team's "more disciplined inventory management" positions the company well for a sequential revenue recovery in the back half of 2024 and into 2025, he further stated.

Benchmark: ON Semiconductor results and outlook missed expectations but were better than feared, "following downward adjustments and negative commentary from peers," Williams said. Although demand remains soft, "inventory health is slowly improving and supporting a flattish guide (+1%)," he added.

"While the fundamentals were about as expected, the longer-term outlook remains upbeat with datacenter and A.I. a prominent part of the discussion during the conference call," the analyst wrote. "Management continues to see strong growth dynamics for the SiC business with adoption expanding across the breadth of end markets," he added.

Truist Securities: The company reported earnings of 96 cents per share, beating consensus by 4 cents per share, Stein said. Although sales guidance missed consensus, the gross margin guidance came in-line with expectations, he added.

"Similar to last [quarter], the company is doing well relative to what it can control,” Stein says. Product development, design wins, and cost management, he noted.

ON Price Action: Shares of ON Semiconductor had declined by 4.22% to $74.97 at the time of publication on Tuesday.

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