ON Semiconductor Corp (ON, Financial) has recently seen a decline of -3.16% in its stock price, alongside a significant three-month drop of -26.51%. Despite these fluctuations, the company maintains a robust Earnings Per Share (EPS) of 4.96. Investors may wonder, with these figures in mind, is ON Semiconductor fairly valued? The following analysis aims to answer this pivotal question and provide a comprehensive look at the company's intrinsic value.
ON Semiconductor is a leading supplier in the power semiconductor and sensor markets, with a keen focus on the automotive and industrial sectors. As the second-largest power chipmaker globally and the top image sensor supplier for the automotive industry, ON Semiconductor has strategically shifted towards a hybrid manufacturing approach to enhance its capacity flexibility. The company is also adapting to target emerging applications such as electric and autonomous vehicles, industrial automation, and renewable energy. With a current stock price of $68.45 and a Fair Value (GF Value) of $69.17, we delve into whether this valuation accurately reflects the company's worth.
Understanding the GF Value of ON Semiconductor
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. ON Semiconductor's GF Value suggests that the stock is fairly valued. The GF Value Line, a visual representation of this valuation, indicates that the stock price should orbit around this level of value. A significant deviation above the GF Value Line could mean that the stock is overvalued, while a price below may suggest undervaluation and potential for higher future returns. At a market cap of $29.50 billion, ON Semiconductor's current stock price is in line with our fair value estimate, indicating a balanced valuation.
Given that ON Semiconductor is fairly valued, its stock's long-term return is likely to mirror the rate of its business growth. For investors seeking opportunities with higher future returns at reduced risk, consider exploring other high-quality companies.
Financial Strength of ON Semiconductor
Investors should prioritize financial strength to mitigate the risk of capital loss. ON Semiconductor's financial robustness can be assessed through metrics like the cash-to-debt ratio, which currently stands at 0.77. This figure is lower than that of 68.93% of companies within the Semiconductors industry. Despite this, ON Semiconductor's financial strength is rated strongly at 8 out of 10, indicating a resilient financial position.
Profitability and Growth Prospects of ON Semiconductor
Investing in consistently profitable companies is generally less risky. ON Semiconductor has maintained profitability for the past decade, showcasing a remarkable operating margin of 32.22%, ranking higher than 94.44% of its industry peers. The company's profitability is strong, with a rank of 8 out of 10. In terms of growth, ON Semiconductor's 3-year average revenue growth rate is relatively moderate within the industry, but its EBITDA growth rate of 40% is impressive, surpassing 72.87% of competitors in the Semiconductors sector.
Evaluating ON Semiconductor's ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) is an effective way to gauge profitability. ON Semiconductor's ROIC is an impressive 27.82, significantly higher than its WACC of 12.86, suggesting that the company is effectively creating value for its shareholders.
Conclusion: Is ON Semiconductor Worth Your Investment?
In conclusion, ON Semiconductor appears to be fairly valued in the market, with a strong financial condition and robust profitability. Its growth prospects are promising, as indicated by its favorable comparison with industry peers. For a deeper dive into ON Semiconductor's financials, investors can review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
