Is onsemi On Target For A New Record High Share Price?

Key Points

• onsemi is well-positioned as a US-based manufacturer and foundry for the semiconductor industry. 
• The company is outperforming expectations and delivering record results. 
• The analysts are supporting the share price and may drive it to a new all-time high. 

If onsemi (NASDAQ: ON) can set a new all-time high, there is a solid case to be made in favor of one. Not only has the company been working to position itself for key growth markets but those markets continue to show strength. The company is a US-based semiconductor company servicing the automotive and industrial community with power modules and management systems, signal control devices, motor control, IoT connectivity and timing, logic and memory solutions. Perhaps most importantly, for the times and the supply chain, it has numerous manufacturing locations in North America, the US specifically, and the EU that induce wafer fabrication and custom foundry services. That’s a big selling point and sets the company apart from names like NVIDIA (NASDAQ: NVDA) in a world where semiconductor companies are desperately working to domesticate their own foundry operations. 

onsemi Has Strong Quarter, Shares Pull Back 

onsemi had a great fiscal Q3 in which revenue and adjusted margins all hit record highs. The company reported $2.2 billion in net revenue for a gain of 26.4% over last year and beat the consensus by a strong 370 basis points. The gains were driven by a double-digit gain in all 3 operating segments and leg by the ISG segment. ISG revenue grew by 10% sequentially and 45% YOY to outpace ASG and PSG by wide margins. The ASG and PSG segments both grew by 20% and 25% respectively last year and put in solid gains of their own. 

“onsemi has delivered another quarter of record results stemming from continued growth in our focus markets of automotive and industrial. We remain confident in our long-term outlook as we continue to win where semiconductor content growth is accelerating for vehicle electrification, energy infrastructure, advanced safety and factory automation. We have taken a proactive and deliberate approach over the last several quarters to make the structural changes required to strengthen our business, and we are in a better position than ever to navigate the current uncertainty in the market,” said Hassane El-Khoury, president and CEO of onsemi.

The company delivered impressive results on the bottom line as well. The GAAP gross margin and EPS are slightly down from the prior year due to restructuring costs and non-cash impairments to goodwill and intangible assets but the adjusted margins are what counts. The adjusted operating margin came in at 35.4% which is up about 1,100 basis points from last year and beat the consensus estimates by quadruple digits as well. The adjusted $1.45 in EPS, which is also impacted by a lower share count, is up from last year’s $0.87 and beat the industry estimate by $0.14. The takeaway is that FCF and LTM FCF both hit records as well and are helping the company to maintain a fortress balance sheet. 

The Analysts Are Supporting onsemi Share Prices

The analysts have not only been supporting onsemi share prices over the past year but they have been driving them higher. The Marketbeat.com consensus of 29 analysts is a steady, Moderate Buy that has been in place for well over a year and comes with an uptrending price target. The price target implies about 8% of upside for the stock based on the pre-release closing price and it is up almost 50% in the last year. Most of onsemi’s analysts' calls tend to come out after it releases results so it is very possible this trend will continue. 

The Technical Outlook: onsemi Could Spring To A New High 

The $73 consensus price target would put the stock very near a new all-time high and it could be exceeded over the next few months. The price action is down following the Q3 results but still above key support at the 30-day moving average. Assuming the market uses this as an entry point, the stock could easily move higher from here. The indicators are in line with upward movement as well and could lead the market up to the $97 level or higher. A move to a new high would be bullish, particularly if it is accompanied by some bullish commentary from the analysts, and it may trigger another wave of buying. If not, this stock will most likely stay range bound in the current range of $60 to $75, give or take.