Leadership matters, and I believe ON Semiconductor (ON) has made a good hire for its CEO position.
There is a lot of work ahead if the company is to deliver meaningfully better margins on a consistent basis, but the new CEO has a positive track record there, and the company’s efforts to upgrade its product/market mix should help. There are still real long-term concerns and challenges, including elevated substitution risk and fierce competition, but I believe the self-help story now has more credibility in the short term.
ON has done a little better than its semiconductor peers since my last update, and semis remain a comparatively hot sector relative to the broader market averages. I do like the cyclical tailwinds that the sector has, as well as prospects for better “value capture”, but I am still concerned about the level of overall valuation. For ON, I think the share price today is pretty fair, but with upside into the mid-$30’s if you believe that operating margins can move into the high teens in 2022/2023.
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