MKM: Despite Near-Term Headwinds, ON Semiconductor's Long-Term Picture Remains Rosy

ON Semiconductor Corp ON reported fourth-quarter results Friday that were broadly in-line with expectations. Although the company’s near-term outlook is adversely impacted by macro weakness, its longer-term prospects remain intact, according to MKM Partners.

The Analyst

Analyst Ruben Roy maintained a Buy rating on ON Semiconductor and raised the price target from $22 to $24.

The Thesis

ON Semiconductor reported Q4 non-GAAP revenue and EPS of $1.5 billion and 53 cents, respectively. The revenue figure was roughly in-line with consensus, while EPS was ahead, backed by a 40-basis point year-on-year expansion in non-GAAP gross margin, Roy said in a Tuesday note. 

The company delivered solid full-year results and management highlighted that they were achieved despite an increasingly difficult macro environment, the analyst said. 

ON Semiconductor has witnessed a sharp slowdown in demand in recent months, especially in the greater China region, Roy said. 

The company guided to Q1 revenue of $1.365-$1.415 billion, the midpoint of which is below the consensus estimate of $1.458 billion. The chipmaker indicated that a modest pickup in bookings has taken place in the past few weeks, following the steep decline that was experienced in late November.

Despite macro challenges, ON Semiconductor projects year-over-year growth in 2019.

ON Semiconductor’s topline in the back half of 2019 may be fueled by “content gains across multiple end markets as well as continued benign pricing dynamics,” according to MKM Partners. 

Price Action

ON Semiconductor shares were up 0.56 percent at $21.71 at the time of publication Tuesday.

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