Analysts Dissect ON Semiconductor's Acquisition Of Quantenna

ON Semiconductor Corp ON reached an agreement to acquire Quantenna Communications Inc QTNA, a leader in Wi-Fi technologies. Here is a summary of some of the Street's initial reactions to the $1 billion acquisition.

The Analysts

Raymond James' Chris Caso maintains a Market Perform rating on ON with no price target.

KeyBanc Capital Markets' John Vinh maintains a Sector Weight rating on ON with a $19 fair value estimate.

Raymond James: Expanding Addressable Market

ON and Quantenna have minimal overlap so the combination of the two is expected to generate just $26 million in operating synergies that will be fully realized in the first year, Caso said in a research report. The deal will give ON access to an incremental $1.2 billion potential market within the Internet of Things (IoT).

Caso said ON expects the deal to better position the company to achieve its 2022 target of achieving $7.2 billion in revenue and a 22 percent operating margin. Each $50 million in revenue upside will also generate an extra 10 cents in non-GAAP earnings per share over the longer term.

KeyBanc: Gaining Wi-Fi Expertise

ON is likely interested in combining Quantenna's Wi-Fi capabilities to improve its own Industrial IoT portfolio, Vinh said in a research report. Specifically, Quantenna's expertise in Wi-Fi cloud would improve ON's capability in Bluetooth and Power. The combination will also create a $1.2 billion opportunity in IoT industrial by 2022 in addition to Quantenna's existing markets.

The merger is expected to be 7 cents per share accretive to ON's EPS from $2.15 to $2.22 per share in the calendar year 2020. ON's net income is expected to move higher from $903 million as a standalone entity to $933 million.

Price Action

Shares of Quantenna traded higher by 18 percent Thursday morning.

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