ON Semiconductor (ON) delivered better-than-expected Q3 2021 results, as the company continued to execute on its new strategy. Record revenue and earnings topped consensus estimates at the back of strong demand for sensing solutions in the automotive and industrial end markets. ON shares rose 14.40% to close at $54.99 on November 1.
ON Semiconductor is a technology company engaged in the design, manufacture, and marketing of semiconductor components. It operates through key segments of Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group. The Power Solutions segment develops discrete, module, and semiconductor products for multiple application functions.
The company delivered record revenue of $1.74 billion in Q3, up 32% year-over-year and above consensus estimates of $1.71 billion. ON Semiconductor also posted record non-GAAP diluted EPS of $0.87, compared to $0.27 delivered the same quarter last year, and above consensus estimates of $0.74.
In addition, ON Semiconductor achieved a record non-GAAP operating margin of 24.5%, an improvement of 1250 basis points from the same quarter last year. Free cash flow landed at $355.7 million, amounting to 20.4% of revenue. (See Top Smart Score Stocks on TipRanks)
Execution of margin expansion plans allowed the company to deliver a 310 basis point quarter-over-quarter improvement in non-GAAP gross margin that landed at 41.5%. Additionally, CEO Hassane El-Khoury has confirmed that impressive strides in expanding the design-win funnel for disruptive applications, such as electric vehicles, position the company towards its target for the financial model.
Yesterday, Needham analyst Rajvindra Gill reiterated a Buy rating on the stock, with a $60 price target, implying 9.11% upside potential to current levels.
“We are bullish on ON Semiconductor due to its strong competitive positioning in the automotive, industrial, and communications end markets, where it stands to benefit from multiple secular tailwinds, including vehicle electrification, industrial automation, increased power efficiency requirements, ADAS, and 5G,” Gill wrote in a research note to investors.
Consensus among analysts is a Moderate Buy based on 17 Buys, 4 Holds, and 1 Sell. The average ON Semiconductor price target of $55.91 implies 1.67% upside potential to current levels.
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