ON Semiconductor (NASDAQ: ON) shares jumped 6.7% on Monday, after the company reported upbeat first-quarter results. The company engages in the design, manufacture, and marketing a portfolio of semiconductor components and products.
Markedly, adjusted earnings of $1.22 per share increased significant from the $0.35 reported in the same quarter last year. Also, it beat analysts’ expectations of $1.05 per share. Revenues jumped 31% year-over-year to $1.95 billion and exceeded consensus estimates of $1.9 billion.
In addition, onsemi achieved a record non-GAAP operating margin of 33.9%, an improvement of 2,060 basis points from the same quarter last year. Free cash flow landed at $304.8 million, amounting to 20.8% of revenue.
Onsemi CEO and President, Hassane El-Khoury, said, “With a highly differentiated portfolio of intelligent power and sensing products, strong visibility driven by long-term supply agreements, and exposure to secular megatrends of vehicle electrification, ADAS, energy infrastructure, and factory automation, we are well positioned to sustain our momentum.”
Outlook
The company forecasts adjusted earnings for Q2 in the range of $1.20 to $1.32 per share, while the consensus estimate is pegged at $1.20 per share. Revenues are anticipated to be between $1.97 billion to $2.07 billion, versus the consensus estimate of $2 billion.
Gross margin is expected to be between 48.5% to 50.5%. Also, adjusted operating expense is anticipated to be between $305 to $320 million.
Wall Street’s Take
Following the results, Rosenblatt Securities analyst Kevin Cassidy maintained a Buy rating on onsemi with a price target of $80 (43.8% upside potential).
In his report, Cassidy wrote, “Structural changes made to market strategy and manufacturing footprint are in the early stages of transforming the company’s income model. The changes include targeting markets where semiconductor content is increasing the fastest – Industrial and Automotive.”
“This strategy moves ON from a semiconductor cycle play to a multi-year secular play. Secular growth applications include smart sensors, smart power, vehicle electrification and energy efficient SiC products,” the analyst added.
Consensus among analysts is a Moderate Buy based on 13 Buys, seven Holds, and one Sell. The ON Semiconductor average price forecast of $70.70 implies 27.1% upside potential to current levels.
Hedge Fund Trading Activity
TipRanks’ Hedge Fund Trading Activity tool shows that confidence of hedge funds in onsemi is currently Very Positive, as the cumulative change in holdings across all nine hedge funds that were active in the last quarter was an increase of 264,200 shares.
Takeaway
Strong results despite several bottlenecks in the operating environment, makes onsemi an attractive stock. Further, ON scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has high potential to outperform market expectations. Investors may want to conduct a deeper-research before investing in the stock.
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