Analyst: ON Semiconductor's Higher Long-Term Targets Are Achievable
ON Semiconductor Corp (NASDAQ: ON) announced higher 2022 targets at a Friday investor meeting. The targets, which reflect EPS of $3, FCF of $1.2 billion and revenue CAGR of 5 percent, seem reasonable against the backdrop of attractive industrial and automotive opportunities, according to Raymond James.
The Analyst
Raymond James’ Chris Caso maintains a Market Perform rating on ON Semiconductor.
The Thesis
Having achieved its 2020 targets two years early, the semiconductor giant set a new target of reaching revenue of $7.1 billion by 2022, Caso said in a Monday note.
This implies a CAGR of around 5 percent, which is higher than ON's previous model of low-single digit growth through 2020, the analyst said.
The higher targets are driven by the company’s two largest businesses, automotive and industrial automotive, Caso said. Automotive, which accounted for 31 percent of sales in 2018, is expected to have a 9-percent CAGR. Industrial automotive, which accounted for 26 percent of 2018 sales, is expected to have a 6-percent CAGR.
The growth in these two businesses will be offset by the remaining 40 percent of the company’s business, which is projected to remain flat or down through 2022, the analyst said.
The semiconductor maker's 2022 model incorporates a 22-percent operating margin on $7.1 billion in revenue, which yields $3 in EPS and $1.2 billion in FCF.
March will be a critical month for determining near-term trends, which the company has declined to discuss, according to Raymond James.
Price Action
ON Semiconductor shares were up 2.49 percent at $22.69 at the time of publication Monday.
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Latest Ratings for ON
Mar 2019 | BMO Capital | Upgrades | Market Perform | Outperform |
Feb 2019 | Cowen & Co. | Initiates Coverage On | Outperform | |
Nov 2018 | BMO Capital | Initiates Coverage On | Market Perform |
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