Amidst Cycle Worries, ON Semiconductor's Drivers Are Delivering

Investors are getting more concerned that the semiconductor cycle is long in the tooth and more vulnerable to a downturn, but ON Semiconductor (ON) continues to deliver generally strong results. With significant growth opportunities in autos and industrial, as well as worthwhile opportunities in more specific markets like datacenter power management and wireless charging, not to mention good progress on profitability since closing the Fairchild deal, it's worth asking whether ON might not continue to stand out as the exception.

The valuation here puzzles me a little, as I don't think long-term growth forecasts in the low-to-mid single digits are very high, nor near-term operating margins in the mid-teens, and yet those assumptions would argue for a fair value in the mid-to-high $20s. Caution regarding the Fairchild deal certainly seemed warranted, given the company's poorly-conceived and poorly-executed Sanyo deal, but today's valuation doesn't seem to reflect much optimism about what I think is a pretty solid plan for growing the auto and industrial businesses in the years to come.

Read the full article here:
Amidst Cycle Worries, ON Semiconductor's Drivers Are Delivering