ON Semiconductor Analysts Weigh In After 'Painful Reset' In Q2

ON Semiconductor Corp ON shares were trading lower Tuesday after the company reported a mixed second quarter. ON reported in-line EPS of 42 cents, but revenue declined 7% to $1.348 billion, short of analyst expectations.

ON said demand in China and the rest of Asia is weak as the trade war drags on.

Here's what ON analysts had to say. 

Weak Backdrop

Bank of America Merrill Lynch analyst Vivek Arya said ON shares offer a compelling valuation, but the macroeconomic background will remain weak for the time being.

“Near-term is tough due to China trade concerns though we note implied organic sales decline in 2019 of -8% YoY is within peer group range,” the analyst said. 

Morgan Stanley analyst Craig Hettenbach cut his 2020 EPS estimate, which was already 15% below the Wall Street consensus, by another 12% following the report.

“This was a painful reset, but one that was necessary to work down the excess that had built up over the last year plus,” he said. 

No Second-Half Recovery

KeyBanc Capital Markets analyst John Vinh said expectations for a seasonal recovery in the second half of the year have fallen given the weak macro environment and worse-than-expected inventory correction.

"While ON noted near-term stabilization and believes the inventory correction will be largely done in 3Q, end demand remains weak across across Consumer, Industrial, Auto, and Computing, partially offset by Auto content growth in EV." 

BMO Capital Markets analyst Ambrish Srivastava said ON is one of a growing list of companies that are not going to deliver the second-half rebound investors had hoped.

“The commentary during today’s call reflected a much more cautious tone, with the company acknowledging continued weakness in demand with little evidence of any meaningful recovery,” the analyst said. 

Ratings, Price Targets

Bank of America has a Buy rating with a price target lowered from $27 to $23. 

Morgan Stanley has an Underweight rating with a price target raised from $14.50 to $15. 

KeyBanc has a Sector Weight rating.

BMO has an Outperform rating with a price target lowered from $30 to $28.

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Posted In: Ambrish SrivastavaBank of America Merrill LynchBMO Capital MarketsCraig HettenbachJohn VinhKeyBanc Capital MarketsMorgan Stanleytrade warVivek AryaAnalyst ColorEarningsNewsGuidancePrice TargetReiterationAnalyst Ratings