Susquehanna analyst Christopher Rolland raised the price target on ON Semiconductor (NASDAQ: ON) to $82.00 (from $77.00) while maintaining a Positive rating following earnings.

The analyst commented, "With onsemi one of our top picks (Marvell the other), we published two notes intra-quarter. The first highlighted the pause in GMs in 2H22/1H23 [link], and the second focused on a potential SiC win at Tesla [link]. We believe this update was constructive on both fronts. First, on GMs, the company acknowledged that SiC start-up costs were impacting GMs by -100 to -200 bps (worse than we had anticipated). However, we believe this is due to the faster and larger than expected SiC volume ramp, which should be viewed as a positive! We were more concerned about the East Fishkill transition, GM impacts, and lack of disclosures around ON’s foundry agreement with GloFo. However, management disclosed just a -55 bps impact in 1Q23, which implies only an ~$125 million revenue obligation, another positive. ON is not exiting low-margin business as quickly as they had expected (expected to exit $300 million in 2H, but now expect $150 million, with $400 million left to go in '23/'24), which also weighs on GMs a bit, but this revenue may still help utilizations in the near term. Regarding Tesla, ON had expected to double SiC revenue in 2022 and exit 2023 on a $1 billion run rate. Now, the company expects to triple their SiC revenue in 2022 and generate $1 billion in SiC revenue in 2023! This is an incredible “pull-in,” and we think it substantially increases the odds that ON has indeed won the inverter module (and/or potential on-board charger?) at Tesla. Previously, we had speculated the timing may suggest the Cybertruck, but this would imply the Model 3/Y. Beyond just Tesla, management increased their long-term SiC customer commitments from $2.6 billion to $4 billion over the next three years (and interestingly, 10% into solar). Finally, management updated their EV content to $750 per EV (vs. just $50 per ICE), which was better than expected and may add credence to their $600 inverter disclosure (analyst day) and help solve for a potential Tesla ASP (i.e., better than we had thought). In short, the Street was estimating basically flat revenue YOY for 2023, but we note a massive incremental ramp of $1 billion in SiC revenue YOY (with better than company GMs) that we believe supports the stock through 2023. Stepping back, it was another transformational quarter of ON as it remains one of our highest conviction names, owing to their constructive setup, self-help, and now potential Tesla derivative story. We reiterate our Positive rating and raise our estimates and price target from $77 to $82 (~15.5x 2022E EV/NOPAT)."