Baird Upgrades ON Semiconductor On Operating Margin Catalysts, Valuation

The current upcycle is likely to continue in 2022, facilitating ON Semiconductor Corp’s ON mix improvement initiatives, according to Baird.

The ON Semiconductor Analyst: Tristan Gerra upgraded the rating for ON Semiconductor to Outperform, while raising the price target from $38 to $48.

The ON Semiconductor Thesis: An aggressive mix shift and high utilization rates enabled ON Semiconductor to gain share in the second quarter, Gerra said in the upgrade note.

“We do not view management's preliminary 3Q below-seasonal revenue outlook as the sign of a coming downcycle, but rather a capacity limitation with the potential for the company to exceed second-half expectations on better supply availability,” the analyst wrote.

“Investors for the medium-term should be rewarded with significant upside both from an ongoing upcycle and likely the most significant turnaround in the company's history,” Gerra stated.

“Cost initiatives, mix and pricing should catalyze further gross margin expansion in both 2H and 2022 as product repositioning initiatives gain momentum,” he added.

ON Price Action: As of Tuesday afternoon, shares were down 0.85% to $37.25 a share.

(Photo: On Semiconductor)