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Why Is ON Semiconductor Corp. (ON) Up 10.3% Since Last Earnings Report?

It has been about a month since the last earnings report for ON Semiconductor Corp. (ON). Shares have added about 10.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ON Semiconductor Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

onsemi's Q3 Earnings Beat Estimates, Revenues Down Y/Y

onsemi reported third-quarter 2023 non-GAAP earnings of $1.39 per share, outpacing the Zacks Consensus Estimate by 3% but declining 4.1% year over year.

Revenues of $2.18 billion beat the Zacks Consensus Estimate by 1.9% but declined 0.5% on a year-over-year basis.

Top-Line Details

Power Solutions Group revenues of $1.23 billion (accounting for 56.4% of revenues) increased 10.2% year over year. The figure beat the Zacks Consensus Estimate by 11.55%.

Advanced Solutions Group revenues of $621.6 million (28.5% of revenues) decreased 15.3% on a year-over-year basis. The figure lagged the consensus mark by 9.42%.

Intelligent Sensing Group revenues of $328.6 million (15.1% of revenues) fell 4% year over year. However, the figure missed the consensus mark by 7.14%.

In terms of end markets, Automotive (53.1% of revenues) revenues were $1.16 billion, up 32.5% year over year. The figure also beat the Zacks Consensus Estimate by 4.71%.

Industrial (28.2% of revenues) end-market (including military, aerospace and medical) revenues increased 0.4% year over year to $615.8 million. The figure lagged the consensus mark by 1.67%.

Other (18.7% of revenues) end-market revenues declined 42.3% year over year to $407.1 million. The figure lagged the consensus mark by 2.34%.

Operating Details

Non-GAAP gross margin contracted 200 basis points (bps) year over year to 47.3%.

Non-GAAP operating expenses increased 5.9% year over year to $322.2 million.

Non-GAAP operating margin was 32.6%, down 290 bps on a year-over-year basis.

Balance Sheet & Cash Flow

As of Sep 29, 2023, onsemi had cash and cash equivalents of $2.68 billion compared with $2.62 billion as of Jun 30, 2023.

Total debt (including the current portion), as of Sep 29, 2023, was $3.45 billion, unchanged sequentially.

Third-quarter 2023 cash flow from operations amounted to $566.6 million compared with the previous quarter’s reported figure of $390.8 million.

Free cash flow amounted to $133.6 million compared with free cash outflow of $39.8 million in the previous quarter.

Guidance

For the fourth quarter of 2023, onsemi expects revenues between $1.95 billion and $2.05 billion.

Non-GAAP gross margin is projected in the range of 45.5-47.5%.

Non-GAAP operating expenses are expected in the range of $300-$315 million.

Non-GAAP earnings are envisioned between $1.13 per share and $1.27 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -11.79% due to these changes.

VGM Scores

At this time, ON Semiconductor Corp. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ON Semiconductor Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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