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On Semiconductor Valuation Is Attractive Ahead Of Earnings Acceleration, Benchmark Says In Bullish Initiation

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On Semiconductor Valuation Is Attractive Ahead Of Earnings Acceleration, Benchmark Says In Bullish Initiation

Notwithstanding apprehensions concerning the timing of a recovery in the semiconductor cycle, one analyst at Benchmark is upbeat about the prospects of ON Semiconductor Corp (NASDAQ: ON).

The Analyst

Ruben Roy initiated coverage of ON Semiconductor at Buy with a $26 price target.

The Thesis

ON has executed well in recent years to shift the company's product mix to higher value markets, analyst Roy said in a Friday morning note. This shift in exposure to higher-end markets such as automotive, industrials and cloud/data center markets should ultimately yield margin leverage, he added.

As opposed to the broader semiconductor market, which is expected to grow at a 4% CAGR through 2022, ON expects CAGRs of 9%, 6% and 13%, respectively for its strategic target markets of automotive, industrial and cloud/data center, Roy noted.

Despite the expected demand recovery not materializing, the analyst said he is encouraged with continued inventory corrections and the company's belief it is under-shipping true end demand.

This, according to the analyst, should support a strong recovery when demand improves.

"...many of ON's focus market design wins are single-sourced as opposed to being multi-sourced in the computing and consumer markets, which ultimately should lead to more stability in top-line performance, in our view," Benchmark said.

The firm sees the company's valuation as attractive ahead of earnings acceleration.

"As ON continues to execute on its longer-term product road-map and end market targets, we expect continued multiple expansion to follow," the firm added.

Price Action

ON shares were up 0.46% to $19.64 at time of publishing.

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Latest Ratings for ON

DateFirmActionFromTo
Sep 2019Initiates Coverage OnBuy
Aug 2019UpgradesMarket PerformStrong Buy
Aug 2019MaintainsBuy

View More Analyst Ratings for ON
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Posted-In: Benchmark Ruben RoyAnalyst Color Initiation Analyst Ratings Tech Trading Ideas Best of Benzinga

 

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