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ON Semiconductor Corp ON

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Morningstar’s Analysis

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Onsemi’s Impressive Q3 Boosts Our Confidence in Its Ability to Achieve Long-Term Targets; FVE to $48

Analyst Note

| William Kerwin |

We're raising our fair value estimate for narrow-moat Onsemi to $48 per share from $38 after the firm provided third-quarter results and fourth-quarter guidance above our expectations. Following its August 2021 analyst day and strong execution throughout 2021, we have greater confidence in the firm’s ability to achieve management’s ambitious 2025 financial targets, and we’re raising our long-term outlook for both sales growth and margin expansion. While we think Onsemi is benefiting from a favorable short-term supply environment, its ability to execute amid automotive production declines, inflationary pressure, and continued COVID-19 effects demonstrate structural progress toward being a less cyclical company, in our view. We think CEO Hassane El-Khoury’s strategy is clearly driving the firm in a more valuable direction, but we still believe it faces considerable execution risk in achieving lofty growth and profitability targets. To us, the current market price implies linear progress toward all the firm’s targets, and we are still uncertain about how the new-look company might fare during a cyclical downturn. After shares popped more than 10% with the release, we continue to view them as overvalued.

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Company Profile

Business Description

Onsemi is a leading supplier of power and analog semiconductors, as well as sensors. Onsemi is the second- largest global supplier of discrete transistors like insulated gate bipolar transistors, or IGBTs, and metal oxide semiconductor field-effect transistors, or MOSFETs, and also has a significant integrated power chip business. Onsemi is also the largest supplier of image sensors to the automotive market, targeting autonomous driving applications. The firm is concentrated in and focused on the automotive, industrial, and communications markets, and is reducing its exposure to the consumer and computing markets.

5005 East McDowell Road
Phoenix, AZ, 85008
T +1 602 244-6600
Sector Technology
Industry Semiconductors
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 34,500