Arizona-based ON Semiconductor Corporation (NASDAQ:ON) specializes in developing solutions related to power and intelligent sensing, which are available under its onsemi brand. The $31.05-billion semiconductor company’s solid fundamentals and a large addressable market strengthen its prospects for the years ahead, making the stock an attractive investment option for prospective investors.
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The company’s growth trajectory has been impressive over time, as evident from its multi-year stock price performance (chart provided below). Interestingly, despite facing supply-chain bottlenecks in the industry, the stock surged 50.9% in the past year and has expanded 33.4% in the past six months.
Analysts tracked by TipRanks are optimistic about the prospects of ON Semiconductor, which warrants a Strong Buy consensus rating based on 16 Buys and five Holds. ON’s average price forecast of $75.94 represents upside potential of 5.62% from the current level. The highest price target is $90 and the lowest price target is $55.
Now, let’s delve deeper into the factors that support ON Semiconductor’s growth story.
Factors Favoring ON Semiconductor’s Prospects
Secular market trends, including vehicle electrification, automation, EV charging, energy infrastructure, automotive lighting, ADAS, and 5G infrastructure, seem to be a boon for ON Semiconductor. With its solid product offerings, offered through its three segments, the company appears well-positioned to benefit from these favorable trends.
While ON Semiconductor offers analog, memory, discrete, isolation, and other products through the Power Solutions Group, it provides ASIC, foundry, gate driver, and other products via its Advanced Solutions Group segment. Its Intelligent Sensing Group segment provides LSI products, actuator drivers, sensors, and other products.
From 2021 to 2025, the company anticipates its total addressable market (TAM) for Intelligent Power to grow at a CAGR of 6% to $64 billion and that for Intelligent Sensing to advance at a CAGR of 10% to $10 billion. The company also predicts that the industrial and automotive markets could account for nearly 75% of its revenues by 2025 versus 60% in 2021.
In August 2022, the company’s President and CEO, Hassane El-Khoury, said, “Our leadership in the accelerating megatrends of vehicle electrification, ADAS, energy infrastructure and factory automation have enabled us to extend long term supply agreements and increase demand visibility.”
For the third quarter of 2022, ON Semiconductor forecasts revenue to be within the $2,070-$2,170 million range. The mid-point of $2,120 million is above the previous quarter’s tally of $2,085 million. Adjusted earnings are forecast to be $1.25-$1.37 per share versus $1.34 per share recorded in the second quarter of 2022.
The consensus estimate for earnings stands at $1.31 per share, and revenues are expected to be $2.12 billion in the third quarter.
At this juncture, it is worth mentioning that the company has recorded earnings beat for nine consecutive quarters. In the last reported quarter, its earnings surprise was 6.3%, and revenue beat was 4%.
A chart depicting the company’s revenues and earnings over the past few quarters is provided below.
Bloggers and Top Investors Are Positive about ON Stock
According to TipRanks, financial bloggers are 88% Bullish on ON Semiconductor versus the sector average of 65%. Top retail investors tracked by TipRanks share a similar sentiment and have increased their exposure to ON stock by 6% in the last 30 days.
Concluding Remarks
From the above discussion, it is evident that ON Semiconductor has all the ingredients that could make it a suitable investment option for prospective investors seeking exposure to the semiconductor industry. Also, the company has a Smart Score of eight out of 10 on TipRanks, which mirrors its potential to outperform the broader market. Notably, the CHIPS Act of 2022 promises to invest billions of dollars in semiconductor manufacturing in the United States. These investments could also boost the prospects of companies like ON Semiconductor.
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