Onsemi Earnings: Shares Look Cheap for Long-Term Buyers After Short-Term Headwinds Spur a Selloff

We trim our fair value estimate for shares of narrow-moat Onsemi to $94, from $97, after it reported solid third-quarter results, but its guidance missed our expectations. Onsemi is expecting lower silicon carbide, or SiC, revenue in the remainder of 2023, behind a large order pushout in its automotive business. The firm is also absorbing manufacturing underutilization costs that weigh on margins as it adjusts for lower overall chip demand this year. Despite short-term headwinds, we are confident in Onsemi's long-term focus on electrification in automotive and industrial applications. We see the firm as primed for strong growth and margin expansion after this period of weaker demand. Shares dropped as much as 19% on the weaker outlook, leaving it undervalued in our view. We think the level of selloff for the stock well overshadows the level by which Onsemi's guidance missed our expectations.