Onsemi Stock: Signs Point to a Powerful Rebound

Onsemi’s (NASDAQ: ON) stock price has headwinds in early 2025, but it is on track for a robust rebound that could begin before mid-year. Hitting lows near $47.25 following its FQ4 2024 earnings release, the stock is at a multi-year low, near a critical support target, and deeply undervalued. The industrial semiconductor stock is roughly 12x its earnings outlook and well below the analyst's lowest price prediction, which suggests a 10% upside with a chance for nearly 70% at the consensus. 

In addition to Onsemi’s position in the industrial semiconductor market, analysts like this stock because of the cash flow, balance sheet, and capital return. The company has a fortress balance sheet with ample cash, low leverage, and rising equity. The 2024 highlights include increased long-term debt, offset by improved current and total assets and a 13% increase in shareholder equity. 

The equity gains are even more significant, given the capital return program, which returned more than 50% of 2024 free cash flow as share buybacks. The buyback activity reduced the count by 2.25% last year and will reduce it again in 2025. There is a risk the pace of buybacks will slow because of the business lull, but expectations are high that the market for industrial semiconductors will improve as the year progresses. In this scenario, Onsemi may slow repurchases in the year's first half and then accelerate them in the back. 

Onsemi Has Weak Quarter, But Weakness Was Expected 

Onsemi had a weaker-than-consensus quarter in Q4, but the weakness relative to the consensus wasn’t unexpected. Nearly 100% of the analyst’s estimates were lowered since the Q3 release, leading sentiment to a below-consensus expectation, which was fulfilled.

Weakness was seen in all four operating segments, although the 16 basis point top-line miss is a slim margin, and the 2% decline in the ISG segment is much less than in the previous quarter. It may revert to growth soon. Other segments are expected to remain weak in Q1 and may not revert to growth until later.

The margin news is also negative but nothing more than what analysts' forecast trends expected. The company’s adjusted gross margin contracted by 140 bps and the operating margin by 490 bps, leaving adjusted earnings at $0.95, down 24% year over year and $0.02 weaker than the consensus target. However, the earnings were sufficient to sustain the company’s balance sheet, which is the critical detail. 

Guidance is why the stock fell to new lows after the release. The company issued weaker-than-consensus guidance, shocking retail traders but aligning with the analysts’ revision trend. The consensus figure for 2025 has steadily fallen since its peak in 2023 and is down more than 30%. The revisions lead to a below-consensus result, and the freshest estimates are near the $1.40 level, the mid-point of Onsemi’s guidance range.

Onsemi Hits Bottom, But Institutions Present a Headwind for Stockholders

The institutional activity presents a headwind for investors. They sold on balance throughout 2024, ramped up activity in the second half, and persisted with it into Q1 2025. The headwind is strong because they own more than 97% of the stock and will keep its price from rebounding while in place. The takeaway is that institutional involvement is high, a bullish sign for the market, but that sentiment is sour. The question is when their activity will revert to buying, likely in the year's first half as the outlook for resumed growth improves. 

Onsemi’s stock price corrected 60% from its high to the post-release lows but is unlikely to fall further. The market has retraced 100% of the rally that began in 2022; it is profoundly oversold and showed early signs of support soon after hitting its long-term lows. These include elevated buying volume at the critical support level, potentially driven by institutional buyers. 

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