Why Is ON Semiconductor Stock Up on Monday?

Semiconductor Stocks

Despite reporting a 5% year-on-year decline in fiscal first-quarter 2024 revenue to $1.86 billion, ON Semiconductor Corp (NASDAQ:ON) stock is trading higher on Monday. This revenue figure, however, exceeded the consensus estimate of $1.85 billion. Additionally, the adjusted earnings per share (EPS) of $1.08 surpassed the consensus of $1.04.

Revenue from the Power Solutions Group (PSG) saw growth of 2% year over year to $874.2 million, while the Analog and Mixed-Signal Group (AMG) decreased by 6% year over year to $697.0 million, and the Intelligent Sensing Group (ISG) fell by 18% year over year to $291.5 million. Despite these fluctuations, the adjusted gross margin declined by 90 basis points to 45.9%, and the adjusted operating margin decreased by 320 basis points to 29.0%.

ON Semiconductor also reported generating $276.3 million in free cash flow and holding $2.61 billion in cash and equivalents as of March 29, 2024. However, the company’s outlook for the second quarter is below expectations, with adjusted revenue projected to range between $1.68 billion and $1.78 billion, compared to a consensus estimate of $1.92 billion. Adjusted EPS for the same period is expected to be between $0.86 and $0.98, below the consensus of $1.10.

Piper Sandler analyst Harsh V. Kumar anticipates that ON Semiconductor’s fundamentals will bottom out in the June quarter, with conservative commentary on the call. He points to growth opportunities in the second half of the year but acknowledges uncertainty regarding the shape of the recovery, which will depend on demand trends in key end markets.

Kumar expects a slight decline in second-quarter guidance primarily driven by the automotive sector, which accounts for over 50% of ON Semiconductor’s revenues. However, he forecasts sequential growth in both the September and December quarters, with a steady recovery in gross and operating margin trends starting in the second half of 2024.

Despite concerns about the EV market, Kumar notes the long-term growth potential, projecting a 20%+ growth in the EV market. Additionally, he highlights the benefits of EVs, including high electronic content. Silicon carbide penetration in EVs remains relatively low, presenting further growth opportunities.

Despite ON Semiconductor stock’s decline of over 13% in the last 12 months, it is currently trading higher by 4.23% at $70.94 on Monday. Investors interested in exposure to ON Semiconductor can consider First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN) and EA Series Trust Strive U.S. Semiconductor ETF (NYSE:SHOC).

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