In a report released today, Joseph Moore from Morgan Stanley maintained a Sell rating on ON Semiconductor (ON – Research Report), with a price target of $44.00.
Joseph Moore has given his Sell rating due to a combination of factors related to ON Semiconductor’s recent acquisition proposal. The company announced an unsolicited bid to acquire Allegro Microsystems at a significant premium, which raises concerns about the financial implications of the deal. While Allegro is seen as a quality business that could complement ON Semiconductor, the high acquisition price suggests that interest expenses could increase substantially.
Moore points out that the expected rise in interest expenses would place a heavy reliance on achieving synergies to make the acquisition financially beneficial. The accretion math appears challenging, with the projected non-GAAP net income from Allegro not sufficiently offsetting the additional costs. These financial pressures contribute to the Sell rating, as the acquisition could strain ON Semiconductor’s financial performance unless significant synergies are realized.