1 Semiconductor Stock to Buy Now for Its 'Compelling' Valuation
Semiconductors are the silent heroes behind our tech-driven lives, fueling everything from smartphones to data centers. Their crucial role in enabling electronics to process, store, and transmit information has revolutionized communication, computing, and countless industries, driving innovation and shaping our interconnected world. The global semiconductor market is expected to hit $1.3 trillion by 2032, expanding at an 8.8% compound annual growth rate.
Amid this tech boom, ON Semiconductor Corporation 
ON has caught analysts' attention. Recently, Wells Fargo 
WFC added ON to its Q3 tactical ideas list, with analyst Gary Mobley calling out a potential inflection point in revenue and earnings growth - making its current valuation highly appealing.
Given this backdrop, investors might want to consider ON as a semiconductor stock to buy now. Here’s a closer look.
About ON Semiconductor Stock
Arizona-headquartered ON Semiconductor Corporation ON provides integrated semiconductor products with diverse functions like power switching, signal conditioning, circuit protection, amplification, and voltage regulation. With a market cap of around $32.3 billion, ON's innovative power technologies are pivotal in advancing automotive electrification, facilitating lighter electric vehicles (EVs), rapid charging systems, and sustainable energy solutions for solar, industrial power, and storage.
ON Semiconductor’s ride from its July 2023 high of $111.35 has been rough, with shares down 32.6% from this peak. The semiconductor stock is down more than 10% on a YTD basis, lagging far behind the Nasdaq-100 Index’s ($IUXX) gain of 21.5% for 2024.
In terms of valuation, ON stock trades at 18.99 times forward earnings, which is lower than the tech sector median of 24.63 and its own five-year average multiple of 19.58x.
ON Semiconductor Beats Q1 Earnings Estimates
On April 29, ON stock rallied more than 4% after its Q1 earnings results, which arrived largely in line with Wall Street’s projections. The company reported revenue of $1.86 billion, while non-GAAP EPS of $1.08 topped forecasts by $0.04 per share.
Free cash flow more than tripled on a year-over-year basis to $276 million in Q1. In the past 12 months, ON has allocated nearly 100% of its free cash flow to shareholders through stock buybacks.
For Q2, management foresees revenue between $1.7 billion and $1.8 billion, while gross margin is projected to range between 44.1% and 46.1%. Adjusted EPS is expected to range between $0.86 and $0.98.
What Do Analysts Expect for ON Semiconductor Stock?
Last week, brokerage firm Wells Fargo reaffirmed an “Overweight” rating and set a $95 stock price target for ON Semiconductor.
"We believe ON is nearing an inflection point in revenue/earnings growth, and its valuation is compelling," wrote analyst Gary Mobley, citing ON’s solid booking data as evidence that its performance should soon catch up with its peers.
Similarly, in mid-June, Needham reiterated its “Buy” rating and a target price target of $92 on ON after meeting with management, with analyst Quinn Bolton predicting EV and SiC shipment inflection points.
Overall, ON stock has a consensus “Moderate Buy” rating. Out of the 28 analysts offering recommendations, 16 say it’s a “Strong Buy,” one advises a “Moderate Buy,” 10 suggest a “Hold,” and the remaining one analyst gives a “Strong Sell” rating.
The mean price target of $84.43 suggests an upside potential of 12.6% from the current price levels. The Street-high target price of $104 for ON Semiconductor implies the stock could rally as much as 38.6%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.