Onsemi: Analyst Day Brims With Confidence, Ambitious Targets Look Achievable; Lift Fair Value to $97

We raise our fair value estimate for Onsemi ON to $97 per share from $74 after a confident analyst day that we believe has substance. Onsemi raised its long-term financial targets across the board, well above our expectations. Its targets are ambitious, but the management team has earned our confidence in achieving them, especially on the profitability front, given the firm’s impressive transformation since 2020. We believe Onsemi has positioned itself to profit off of fast-growing secular trends and reduce cyclicality. Achieving its new targets will require defending myriad threats in silicon carbide and image sensing, as well as flawless execution on manufacturing efficiency. More than $17 billion cumulatively in long-term agreements give us confidence in management’s visibility. At our updated valuation, we see shares as attractive. The stock reaction to the event was uninspiring, which we believe is due to both skepticism on target achievement as well as already-high estimates and price targets.

The 2023 analyst day mostly highlighted continuity in Onsemi’s strategy. Management doubled down on silicon carbide, or SiC, expansion targets, including $1 billion in sales in 2023 and 50% of wafers being sourced in-house exiting the year. We continue to see the firm’s brightest SiC opportunities in electric vehicles, and management highlighted its design wins with dozens of leading automakers. We were pleased to hear of industrial design wins for image sensors, like machine vision. We were surprised by the degree to which Onsemi doubled down on traditional silicon applications, highlighting progress in controllers and power management chips that could serve data center applications. These chips are more differentiated in our view than Onsemi‘s legacy business in low-margin discrete transistors. We see Onsemi benefiting from cross-selling all these technologies to its customers—it highlighted the BMW i7, into which it sells over 500 different chips.