Why ON Semiconductor (ONNN) Is Up Today

Tickers in this article: ONNN

NEW YORK (TheStreet) -- ON Semiconductor Corp.  was rising 2.6% to $8.86 on Tuesday morning after Credit Suisse upgraded the stock to outperform from neutral thanks to its relative valuation and the progress it has made toward achieving gross margin goals.

Credit Suisse raised its target price of the Phoenix-based company to $12 from $8. The firm upgraded ON Semiconductor based on the following three factors:

"1. After 11 quarters, the Sanyo acquisition is no longer a headwind to profitability and is likely able to drive $0.05-0.07 cents of accretion to 2014 even on down y/y revenue
2. Management has little to no appetite for large acquisitions allowing them to focus on driving the operating model to target (41% GM versus C4QE GM of 34.3%) and to prioritize cash flow to buy back stock ($30.2m in C3Q13 versus $75.3m TTM and authorization of $202.4m)
3. Potential market share gains in power management in PCs from both ISIL and TXN. Our analysis suggests that ONNN has EPS potential of $1.00 at target GM and $0.10 more EPS potential at peak GM than FCS (UP), despite trading at 12.0 times FTM EPS versus 17.9x for FCS and have significantly less exposure to handsets (~10% versus 25% for FCS)."

Volume on Tuesday morning was 5 million shares; average daily volume is 6.1 million shares. 

TheStreet Ratings team rates ON SEMICONDUCTOR CORP as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ON SEMICONDUCTOR CORP (ONNN) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 314.4% when compared to the same quarter one year prior, rising from $12.50 million to $51.80 million.
  • Net operating cash flow has significantly increased by 403.36% to $59.90 million when compared to the same quarter last year. In addition, ON SEMICONDUCTOR CORP has also vastly surpassed the industry average cash flow growth rate of -11.34%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • ONNN's debt-to-equity ratio of 0.62 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.14 is sturdy.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, ON SEMICONDUCTOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: ONNN Ratings Report