Analyst Note| Brian Colello, CPA |
Narrow-moat ON Semi reported a strong end to a challenging year by posting topline numbers above management’s prior guidance and FactSet consensus estimates. This strong showing was primarily driven by automotive and industrial revenue, which roared back to growth after multiple quarters of year-over-year declines. Management’s outlook for the first quarter of fiscal 2021 indicates continued growth and margin expansion due to strong demand across end markets. Hassane El-Khoury, ON Semi’s new CEO, reaffirmed the firm’s confidence in leveraging key secular trends across the industrial, automotive, and cloud-power verticals to grow its business. We are raising our fair value estimate for narrow-moat ON Semi to $30 per share from $23 per share due to both the time value of money as we roll our valuation model, as well as more robust near-term revenue growth. With shares trading around $36, we recommend investors wait for a pullback before committing new capital to the name.