Bank of America Upgrades ON Semiconductor to Buy, $85 Price Target
BofA Securities analyst Vivek Arya upgraded ON Semiconductor (NASDAQ: ON) from Neutral to Buy with a price target of $85.00 (from $70.00).
“The slow auto/EV environment makes our ON upgrade potentially a tad early, but we like the company’s 1) pipeline (rising AI power, Treo products), 2) solid FCF generation (~6% FCF yield), 3) buyback commitment ($6bn/next 3 years, essentially 100% of FCF), 4) model leverage (EBIT margins could reach 1.5x to ~30% by CY28E), and 5) and low balance sheet leverage (dry power for potential M&A, as discussed by management).
There is catch-up potential, with the stock down 36% in the past 3 years (vs. peers up 7%, SOX up 132%) on auto/EV/ Tesla-related weakness, However ON has responded well by pruning its portfolio, cutting costs, and focusing on FCF generation/returns.
The company has also invested in boosting its AI power exposure, likely a focus at upcoming analyst day in September, a potentially positive catalyst.
We raise our CY26/27 pro forma EPS by 2%/7% and hence increase our PO to $85 from $70, now on 21x CY27 PE (vs.
18x prior) given an improving growth profile, supported by an accelerating 26%/40% YoY EPS growth in CY26/27E. Longer term (CY28E), we see pro forma EPS/FCF power of $6-7/share, 2x current levels.”
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