ONSemi Is On Target For New Highs In 2023

Key Points

• ONSemi moved higher on a beat-and-raise report, and new highs are on the way. 
• Analysts support the stock but may cap gains in the near term. 
• Institutional activity surged at the start of Q3 and will help lift the market. 

ONSemi NASDAQ: ON is on target for new highs in 2023, but the move may not come immediately. The market is up a solid 3% following the Q2 results and guidance for Q3, but the market may have reached a near-term top. The #1 reason is the analysts. The analysts support the market, but the Q2 strength may have already been priced into the stock.

The market for ONSemi stock is up more than 100% in the last 12 months and ready for a consolidation that could last a few weeks to a few months. 

Marketbeat.com is tracking 27 analysts with ratings on this stock which is a significant figure. This is sufficient to provide significant head and tailwinds, and they see the stock trading lower than where it is now. The consensus rating is a Moderate Buy, and there has been enough bullish activity to get ON stock on the Most Upgraded Stocks list.

Still, the price target is about 10% below the current price level, with no fresh target released immediately after the earnings release. The mitigating factor is that the price target is up strongly compared to last year, last quarter, and last month with the most recent targets above the current price action. If this trend continues, the consensus target should trend higher and continue to support the market. 

ONSemi Has Beat-and-Raise Quarter

ONSemi had a solid quarter, with revenue of $2.09 billion coming in flat compared to last year but outpacing the consensus estimate by $0.070 or about 340 basis points better than expected. The gains were driven by growth in 2 of 3 operating segments, with PSG up 11%, ASG up 10%, and ISG down 8%. Strength was noticeable in the automotive and industrial end markets, with automotive up 35% YOY and industrial up 5%, proving the company’s refocus was wise. 

Silicon Carbide was another area of strength and was up roughly 4X YOY. This is significant because this brownfield investment is paying off nicely. The silicon carbide semiconductor industry is seeing high demand from the electrification and EV industries for use in inverters and other charging-related applications. 

Margin is another area of strength. The company widened the margin at the gross and operating levels to leverage the top-line strength. The gross margin widened by 60bps GAAP and adjusted, while the operating margin widened by 340 bps.

That left the adjusted EPS down a penny compared to last year but a solid $0.12 better than the Marketbeat.com consensus or about 1000 bps. Guidance is also favorable. The Q3 revenue and earnings targets are above the consensus and should result in upward revisions to earnings targets, if not the stock price target. 

Institutions Double-Down On ONSemi

The institutional activity has been roughly balanced between buyers and sellers over the last 12 months, but there is a bullish takeaway from the data. The institutions own about 99% of the stock and bought in large quantities in the first month of Q3. The net activity was nearly $12 billion, and almost 100% of the activity was buying. That’s worth about 25% of the company and 1 reason the market moved up to a new all-time high in July. 

The price of ONSemi surged more than 3% on the Q2 news and guidance to hit a new high. However, the market moved lower after the opening suggesting a top is in place. The question is whether the market will consolidate to the side and maintain current price levels or move lower. In the 2nd scenario, this stock could shed $20 or nearly 20% before hitting the long-term 150-day EMA and the first solid support target.