ON Semiconductor Shares Plunge 7% Following Goldman Sachs Downgrade

Goldman Sachs downgraded ON Semiconductor Corp ONNN Wednesday from Neutral to Sell and cut its price target from $12.50 to $10.50.

Analysts led by Gabriela Borges noted that the stock was up 50 percent over five months and that the market was "underestimating the potential for discrete pricing to deteriorate after several quarters of stability."

Borges believed the recent appreciation of the U.S. dollar would "drive ON's European and Asian competitors to be more aggressive on pricing," and data showed that "pricing declines intensify when the dollar strengthens."

The analysts also pointed out that "seasonality in analog shows that the Street has consistently underestimated the impact of changing seasonality this cycle (stronger 1H driven by industrial/auto but weaker 2H), which has driven ON's stock to underperform by 6 percent in 2Q and 16 percent in 3Q."

Borges concluded that the firm could become more positive on the stock if FX were to become a tailwind or if the company had greater than expected pricing power due to scale.

The $10.50 price target was based on 11x normalized EPS of $0.95, down from 12x $1.05.

ON Semiconductor fell more than 7 percent following the downgrade and later recovered some of its losses. The stock recently traded at $11.28, down 6.8 percent.