ON Set To Gain From Winning Tesla As Customer, Expand Valuation According To Analysts Who Bumped Up Price Targets

Analysts lauded ON Semiconductor Corp's ON Q2 beat by lifting their price targets on the stock.

Needham analyst Rajvindra Gill maintained ON with a Strong Buy and raised the price target from $60 to $80. He noted that ON delivered a solid beat and raised 2Q22, including a significant increase in its silicon carbide (SiC) expectations. 

Gill believes the gross margin guide implies normalized margins as they work through transitory costs (start-up costs for SiC and East Fishkill). Results here point to the unrelenting EV penetration story and new customer wins, which he guessed to be Tesla Inc TSLA. 

Finally, as the company exits non-core businesses, he expects the P/E multiple to expand, perhaps closer to Analog Devices, Inc ADI, Texas Instruments Inc TXN, and even Monolithic Power Systems, Inc MPWR. 

Mizuho analyst Vijay Rakesh maintained ON with a Buy and raised the price target from $68 to $72. ON reported a good June quarter, slightly better than consensus, and guided the September quarter on solid Auto/Industrial demand with ADAS and SiC. 

Auto revenue was up 41% Y/Y, vs. LVP up 1% Y/Y, with ADAS/EV traction for image sensors and power, while Industrial was up 34% Y/Y with factory for image sensors and power. In comparison, Industrial was up 34% Y/Y with factory now at ~$4 billion committed revenue for next 3-years (prior: ~$2.6 billion). 

Rakesh expects ON as well-positioned with its strong Auto/Industrial (EV, SiC) position, focus on accretive growth, and tight supply. 

Rosenblatt analyst Kevin Cassidy reiterated a Buy with a price target of $80. He noted that ON turned in another record quarter with September outlook as flattish but beating consensus. 

Cassidy was most impressed by the accelerated demand for silicon carbide (SiC) products. As these products reach scale in 2023, they will move to a tailwind for corporate gross margin from a headwind, he believed. 

Based on the increasing long-term agreements with customers, Cassidy thinks the management team had turned the company into a strategic automotive and industrial supplier from a broad-based tactical commodity products supplier. He believed that this difference should move the company and share price away from the cyclical volatilities. 

Price Action: ON shares traded higher by 5.29% at $67 on the last check Tuesday.