Barclays Initiates ON Semiconductor at Equalweight, $75 Price Target

Barclays analyst Tom O’Malley initiates coverage on ON Semiconductor (NASDAQ: ON) with a Equalweight rating and a price target of $75.00.

“Stronger Correlation with PMIs and Solid Operating Leverage. ON has a stronger correlation with PMIs than MCHP and it owns a large portion of its own manufacturing.

The stock also tends to outperform the S&P in the next 3mo (+7%) and 12mo (+19%) after PMIs break above 50 (see Figures 6 and 7).

We think GM can see further upside factoring in self-help.

Tailwinds to GM include 700bps from utilization increases (in the high 60s% today to full capacity of low 90s%), 200bps from Fab Right initiatives, 200bps from fab divestitures, and another 200bps from new products. • High China / Auto Exposure is a Well Understood Overhang, Tailwind from Increasing Data Center Content.

We think ON’s Asia excl.

Japan / Auto exposure (roughly 50% each), particularly China EV, puts pressure on the stock but this is largely understood and we see some positives such as share in new design wins and global EV expansion.

Overall, we think the high Auto exposure likely underperforms companies with higher Industrial exposure.

The shift to 800 VDC architectures should drive sizable content expansion ($9.5K/rack today to $105K/rack by 2030) which could expand ON’s DC sales to LDD% of sales. • Inventories Still Elevated.

Inventories remain elevated but are coming down. The DOI at ~192 today includes 76 days of bridge inventory (held to support fab transitions in SiC), which implies base inventories of 116 days vs.

100-120 target. The company also has a strong cash / leverage position at ~0.5x ND/TTM Adj. EBITDA.”

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