ON Semi Joins Top Chip Picks As Tesla Gains And Allegro Deal Signal Upside

Core Viewpoint - BofA Securities analyst Vivek Arya identifies three top diversified semiconductor picks, indicating a near bottom for the industry with industrial semiconductors leading the recovery, followed by auto semiconductors in late 2025 [1] Group 1: Top Picks and Performance - Arya's top picks in order of recovery potential are Analog Devices, Inc (ADI) with a $280 price target, NXP Semiconductors (NXPI) at$ 235, and ON Semiconductor Corp (ON) at $60 [2] - Analog Devices has outperformed the PHLX Semiconductor Sector 23 out of the last 29 times the index declined over 10% since 2010, making it a strong defensive choice [3] - NXP Semiconductors has a relatively shallow sales peak-to-trough correction of -18%, indicating prudent execution and growth potential from product cycles [5] Group 2: Financial Metrics and Projections - Analog Devices' industrial sales are still 15-20% below trend based on fiscal 2018 and 2019 baselines, suggesting significant upside potential [4] - The company is expected to achieve 37% margins in fiscal 2025, significantly higher than peers' average of 17%, with potential for buybacks to double due to a new$ 10 billion authorization [4] - ON Semiconductor's estimates show a -15% sales decline for calendar 2025, which is below peers' range of -13% to +13%, but the stock is seen as compelling due to high leverage to improvements in Auto/EV sentiment [6] Group 3: Market Conditions and Strategic Moves - Arya acknowledges risks related to tariffs and economic contraction but notes that diversified stocks tend to outperform during significant declines in the SOX index [2] - Allegro MicroSystems, Inc's potential deal could provide 4%-7% accretion by calendar 2027, enhancing the sensor portfolio [7] - Despite current downturns, ON Semiconductor's free cash flow percentage could improve to mid-20% from 17% in calendar 2024, indicating resilience [7]