Should you invest in ON Semiconductor after Morgan Stanley upgrade?

ON Semiconductor Corp (NASDAQ:ON) shares gained more than 3% on Tuesday to build to Monday’s spike. The company reported its most recent quarterly results on Monday before markets opened, beating analyst expectations on earnings. Furthermore, analysts from Morgan Stanley upgraded ON stock from underweight (sell) to equal weight (neutral) rating. 

Analyst Joseph Moore wrote: 

[ON Semicondcutor] reported the strongest results out of all of the broad-based suppliers in our coverage.

He added that the company’s solid portfolio optimisation would continue to drive solid fundamental performance.

ON Semiconductor reported non-GAAP fiscal Q2 EPS of $0.63, beating analyst expectations by $0.14. On the other hand, the GAAP EPS of $0.42 beat by $0.07 while revenue grew by 38% to $1.67 billion, outperforming estimates by $50 million.

Should you invest in ON Semiconductor in Q3 2021?

The recent surge in ON stock price has pushed the market valuation to a P/E ratio of 55.38, while its forward P/E of 18.85 looks attractive. In addition, analysts expect earnings per share to increase by more than 20% next year, more than double this year’s estimate of 9.90%.

Therefore, although ON shares may not look attractive based on realised earnings over the last 12 months, investors may be interested in what could happen over the next twelve. As such, although the recent gains may put some investors off, it may not be too late to buy ON shares.

Technical overview: ON Stock price predictions for Q3 2021

Technically, ON Semiconductor shares appear to have recently spiked to overbought conditions in the 14-day RSI. In addition, ON stock has also surged above the 100-day moving average after dropping below at the start of May. 

The stock consistently traded above the 100-day MA before the May plunge. Therefore, the return above could take the price even higher on increased positivity. 

Investors can target extended gains at approximately $48.30 or higher at $52.00. The key support levels are $41.70 and $38.34.

Bottom line: the catalyst for buying betting one extended gains

Although ON shares have surged several levels above the 100-day MA and into overbought conditions, the stock could still advance higher on Monday’s solid Q2 results. Moreover, ON Semiconductor has consistently traded above the key technical indicator, meaning it could replicate past performances. Therefore, even if a pullback occurs, it could be temporary as the bull run remains solid.