onsemi Bottoms, Institutional Activity Turns Bullish

onsemi Is Ready To Move Higher 

Shares of onsemi (NASDAQ: ON) corrected more than 27% over the past few months for no good fundamental reason. No good fundamental reason for the company, that is, because there is a good fundamental aspect of the market that can account for the selloff and that is institutional selling. Institutional selling was robust in 2021 and especially the 3rd quarter when share prices were trading at an all-time high. This set up a fundamental weakness in the market that left the stock in a weak position when it reached yet more new highs the quarter after. Now, with a good correction under its belt and the institutional tide turning, we see the potential for double-digit upside in shares of Onsemi. 

Just to recap, institutional outflows topped $12.99 billion in 2021 with $11.0 billion of that happening in the 3rd quarter. The net activity for the year is $8.75 billion which is equal to about 35% of the market cap with shares trading above the Q3 levels. Since then, institutional activity has slacked off considerably but is net-bullish for Q4 2021 and the first month of 2022. 

Bullish Analysts Support ON Share Prices 

The analysts are bullish on onsemi with two noteworthy trends in the data. The first is the consensus estimate. The consensus rating on the stock pre-earnings release was a weak Buy with a price target of $61.95. The consensus target assumes the stock is fairly valued at current prices (near $61.95) but has been trending upward over the last year. The consensus is up nearly 100% in the last 12 months with incremental increases in the last 90 and 30 day periods. We expect that trend to continue. The second is that onsemi has been attracting more analysts, doubling the number of active ratings over the past year, which is a sign of increasing market conviction and, even better, new capital coming into the market. We expect to see that trend continue as well. 

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onsemi Moves Higher On Strong Results 

onsemi had a phenomenal quarter driven both by high demand for microchips but also by the company’s rationalization and growth efforts. The $1.85 billion in net revenue is up 27.6% from last year and beat the consensus estimate by 335 basis points on strength in focus markets like EV, alternative energy, and industrial use. The strength was compounded by margin improvement as well and left the bottom line earnings well above expectations. The $1.09 in GAAP EPS beat by $0.15 and the guidance for Q1 2022 is equally strong. The company is expecting revenue in the range of $1.85 billion to $1.95 billion compared to the $1.78 consensus estimate and for EPS of $0.98 at the low end of the range compared to the consensus $0.82. Those are good numbers. 

The Technical Outlook: Onsemi Poised To Retest All-Time High 

Shares of onsemi are moving higher in the wake of the Q4 results and are poised to move higher now that institutional activity is shifted in favor of the bulls. The market is showing support at a new, higher-level since hitting the lows last month and is trading the stock above the short-term moving average of prices. The indicators are bullish as well, leading us to think the stock would retest the all-time highs again if not move up to set a new all-time high later this year. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
ON Semiconductor (ON)	$55.24	+0.8%	N/A	71.74	Hold	$59.12