Onsemi Earnings: Cyclical Weakness Endures, but Market Coming Around to Our Recovery Thesis

We maintained our $86 fair value estimate for shares of narrow-moat ON Semiconductor as we maintain our long-term recovery thesis for the firm. Onsemi’s second-quarter results met our expectations, and we view guidance for sequential growth in the third quarter positively. Automotive and industrial chip demand remains soft, in part due to customers working through built-up excess inventories. We agree with Onsemi’s cautious outlook for the second half of 2024, which matched commentary from peers like STMicro and NXP earlier in July. We don’t foresee a significant improvement in this demand in 2024, but we do model a rebound in 2025. Still, the market viewed guidance positively, likely due to being better than feared after downside in NXP and STMicro’s reports. Shares rose 12% after results reported, but we continue to see modest upside for investors at current levels.