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ON Semiconductor's (ON) Q3 Earnings: What's in the Cards?

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ON Semiconductor's (ON) Q3 Earnings: What's in the Cards?

ON Semiconductor's (ON) Q3 results are expected to benefit from strength in its automotive and industrial verticals. However, sluggish performance from communications end market remains a concern.

ON Semiconductor Corporation ON is scheduled to release third-quarter 2018 results on Oct 29.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing three quarters, recording an average earnings surprise of 3.4%.

In the second quarter of 2018, ON Semi reported earnings of 46 cents per share, increasing 27.8% year over year. The figure beat the Zacks Consensus Estimate by a penny.

Moreover, revenues of $1.46 billion increased 9% year over year and surpassed the Zacks Consensus Estimate of $1.43 billion.

ON Semiconductor has three business units namely — Power Solutions Group or PSG, Analog Solutions and Intelligent Sensing Group or ISG. The three units generated revenues of $748.2 million, $513.2 million and $194.5 million, respectively in the second quarter.

What to Expect

For the third quarter of 2018, ON Semiconductor forecasts revenues to be in the range of $1.485-$1.535 billion, given its booking trends, estimated turn level and backlog level. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.51 billion indicating year-over-year growth of 8.6%.

Further, the Zacks Consensus Estimate for earnings is pegged at 50 cents, representing growth of 66.7% from the year-ago quarter.

The Zacks Consensus Estimate for PSG is projected at $765 million, more than $706 million recorded in the year-ago quarter. The Zacks Consensus Estimate for Analog Solutions unit is estimated to be $525 million, above $492 million in the year-ago quarter. The Zacks Consensus Estimate for ISG is pegged at $210 million, above $193 million in the prior-year period.

Factors at Play in Q3

ON Semi’s strength in automotive and industrial end-markets is anticipated to be a tailwind. Further, robust demand, adoption and favorable product mix of its diversified product portfolio are key top-line drivers.

Automotive revenues are anticipated to remain strong backed by the impressive demand witnessed by image sensors for ADAS applications, and IGBTs for electric vehicle traction motors in China. Furthermore, new design wins leading to impressive growth in LED lighting business, are expected to bolster automotive lighting revenues.

The Zacks Consensus Estimate of revenues from Automotive end market is projected at $477 million, more than $411 million in the year-ago quarter.

Management anticipates industrial end-market revenues to be down sequentially. However, the Zacks Consensus Estimate of revenues from Industrial end markets is pegged at $396 million, more than $349 million in the year-ago quarter. Sturdy demand of ON Semi’s power modules, image sensors and machine vision is anticipated to drive revenues on a year-over-year basis.

Computing end-market revenues are anticipated to increase on the back of continued ramp in server business. Further, ON Semi is engaging important cloud and server companies, and working on next generation platforms for leading CPU providers. The Zacks Consensus Estimate of revenues from Computing end market is projected at $158 million, more than $157 million in the year-ago quarter.

Robust demand of white goods is anticipated to increase revenues in consumer end-market. The Zacks Consensus Estimate of revenues is pegged at $211 million, higher than $192 million a year ago.

New device models are anticipated to support revenues in communications end market.

Nevertheless, the Zacks Consensus Estimate of revenues from communications end market is pegged at $269 million, lower than $282 million a year ago. The anticipated decline can primarily be attributed to seasonality.

Notably, addition of Fairchild’s offerings has made ON Semi’s product portfolio lucrative but it has also added considerable debt which remains a concern.

ON Semiconductor Corporation Price and EPS Surprise

ON Semiconductor Corporation Price and EPS Surprise | ON Semiconductor Corporation Quote

What Our Model Says

According to the Zacks model, a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

ON Semi has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.24. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are few companies which as per our model have the right combination of elements to post an earnings beat this quarter:

Ameren Corporation AEE has an Earnings ESP of +8.65% and a Zacks Rank #1. The company is slated to report third-quarter earnings on Oct 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Herbalife LTD. HLF has an Earnings ESP of +2.29% and a Zacks Rank #2. The company is slated to report third-quarter earnings on Oct 30.

Allison Transmission Holdings, Inc. ALSN has an Earnings ESP of +1.68% and a Zacks Rank #2. The company is slated to report third-quarter earnings on Oct 29.

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