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Here's Why You Should Get Rid of ON Semiconductor Stock Now

Zacks Equity Research

If you are still holding on to shares of ON Semiconductor Corporation ON in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.

Dropping ON Semiconductor can maximize investor’s portfolio returns as it has witnessed a significant price decline in the past one year. Further, the company’s Zacks Rank #4 (Sell) only highlights its innate weakness.

The company’s shareshave lost 27.5% of its value year over year compared with the industry’s decline of 20%.

Let’s delve deeper and analyze the factors dragging the company down.

Why Should You Avoid ON Semiconductor?

ON Semiconductor is an original equipment manufacturer (OEM) of a broad range of discrete and embedded semiconductor components. The company has significant debt burden. The company exited the third quarter with total debt (long-term plus short term) amounting to $2.71 billion. Net debt at the end of the quarter amounted to $1.76 billion. A high debt position increases the risk profile of the business.

The company faces significant competition in all of the served markets. Being a maker of building block components of a general purpose nature, competition comes from every kind of integrated circuit manufacturer.

However, ON Semiconductor’s restructuring actions are likely to have a positive impact on margins over the next year or so. Further, its recent acquisitions have increased its exposure to industrial, automotive and consumer markets that have helped it diversify from a sluggish computing market. Nevertheless, the company is considering cutting down utilization, as broader markets are witnessing weaker demand trends. This will invariably lead to poorer fixed cost absorption, in turn eroding margins.

Stocks to Consider

Some better-ranked stocks in the broader technology sector are Upland Software UPLD, Marvell Technology Group Ltd. MRVL and Infineon Technologies AG IFNNY, all flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Upland Software, Marvell and Infineon Technologies is currently pegged at 20%, 9.4% and 8.6%, respectively.

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Upland Software, Inc. (UPLD) : Free Stock Analysis Report
Marvell Technology Group Ltd. (MRVL) : Free Stock Analysis Report
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ON Semiconductor Corporation (ON) : Free Stock Analysis Report
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