ON Semiconductor rises as Wells Fargo upgrades, sees 25% upside
On Semiconductor (NASDAQ:ON) shares rose early on Thursday after investment firm Wells Fargo upgraded the stock, noting it has a significant opportunity in automotive.
Analyst Gary Mobley raised the rating on On (ON) to overweight from equal weight and boosted the per-share price target to $65, implying 25% upside from current levels. Mobley added that there is "opportunity" for On Semiconductor (ON), as well as Wolfspeed (WOLF) to make their way into Tesla (TSLA) and other electric vehicles and become "top suppliers of [silicon carbide] power devices to the EV market."
"While ON's automotive exposure is a key part of our investment thesis, we also think management is still in the early innings of transforming the company into a 'fab-liter' semiconductor company w/a structurally different margin & cyclical profile moving forward," Mobley wrote in a note to clients.
On Semiconductor (ON) shares rose nearly 1.5% to $52.50 in premarket trading on Thursday.
Mobley noted that On Semiconductor (ON) shares have pulled back substantially and are now trading at a "more attractive" valuation given its historical levels and a "substantial discount" to the broader chip sector, as it ramps up both its automotive and industrial revenue.
In addition, the automotive "super cycle" thesis is likely to help the company, as more chip content makes its way inside electric vehicles. 
"While ON has only hinted to design wins at NIO and Mercedes, we believe ON's growing pipeline of SiC power device sales will make the company one of the top players in the [silicon carbide] market," Mobley added, while pointing out On is on pace to double [silicon carbide] revenue in 2022 and could reach $1 billion annualized run rate in 2023.
Given the possibility that electric vehicles could reach 10 million annualized run rate in 2023 or 2024, it's possible the [silicon carbide] power device market could reach $5 billion, adding to the thesis for the upgrade, Mobley explained.
On Semiconductor (ON) recently posted first-quarter results and issued second-quarter guidance that handily topped Wall Street estimates.