It has been about a month since the last earnings report for ON Semiconductor Corporation ON. Shares have added about 2.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ON Semi posted fourth-quarter 2016 reported earnings of $0.26 per share that compared favorably with the year-ago earnings of $0.13 as well as third-quarter earnings of $0.02. Notably, the company exceeded its own revenue and margin guidance for the fourth-quarter of 2016.
ON Semi reported revenues of $1.261 billion, up 32.6% sequentially and 50.1% year over year. Notably, revenues beat the Zacks Consensus Estimate of $1.216 billion quite comfortably.
Revenue growth in the quarter was driven by strong progress of the Fairchild integration, solid execution of the company’s organic business and an improving demand environment for its products.
ON Semi currently has three business units namely – Power Solutions Group or PSG (contributed nearly $0.62 billion), Analog Solutions (contributed nearly $0.469 billion) and Image Sensor Group (contributed approximately $0.17 billion).
The company’s fourth-quarter revenues include a contribution of approximately $0.36 billion from Fairchild Semiconductor whose acquisition was closed on Sep 19, 2016. Overall, the revenue performance of ON Semi’s organic business as well as Fairchild improved substantially seasonally. The company’s organic business (excluding Fairchild) witnessed a 7% year-over-year increase in the fourth quarter.
Non GAAP gross margin was 35.2%, down 70 basis points (bps) sequentially but up 190 bps year over year. The year-over-year increase was largely driven by strong progress of the Fairchild integration as well as higher-than-expected revenues.
ON Semi incurred operating expenses of $0.29 billion, up 23.6% from the previous quarter and 57.5% from the year-ago quarter.
Non-GAAP operating margin was 12.9%, down 10 bps sequentially and 180 bps year over year.
Cash and cash equivalents were $1.03 billion at the end of the fourth quarter, increasing $0.15 billion sequentially and $0.41 billion on a year-over-year basis.
At the end of the reported quarter, ON Semiconductor had $3.1 billion in long-term debt, flat sequentially.
ON Semi expects first-quarter 2017 revenues in a range of $1.215 billion to $1.265 billion.
Non-GAAP gross margin is expected in the 34% to 36% range, while GAAP gross margin is expected in a range of 33.4% to 34.8%. Operating expenses, on a GAAP basis, are expected within $0.30 billion to $0.33 billion, and within $0.27 billion to $0.28 billion on a non-GAAP basis.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter In the past month, the consensus estimate has shifted by 15.06% due to these changes.
ON Semiconductor Corporation Price and Consensus
ON Semiconductor Corporation Price and Consensus | ON Semiconductor Corporation Quote
At this time, ON Semiconductor's stock has an average Growth Score of 'C', however its Momentum is doing a lot better with an 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for momentum and value investors while also being suitable for a lesser degree those looking for growth.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
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