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ON Semiconductor Corp ON

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

ON Semi Forges Onward with a Strong End to a Tumultuous Year; Raise FVE to $30; Shares Overvalued

Brian Colello, CPA Sector Director

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.

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Company Profile

Business Description

ON Semiconductor spun off from Motorola in 1999 and has since become a leading supplier of chips into automotive and industrial markets, with products in analog, discrete, power management, and image sensing. The firm has made several acquisitions in the past few years to solidify share in its key markets. The largest of these was the 2016 purchase of Fairchild Semiconductor for $2.4 billion, which greatly increased the firm’s strength in the discrete chip market.

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