ON - Embedded Expectations Analysis - 2021 03 31
ON Semiconductor Corporation (ON:USA) currently trades above historical averages relative to UAFRS-based (Uniform) earnings, with a 23.8x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about utilization rates, supplying the auto market, and their cost reduction effortsSpecifically, management may lack confidence in their ability to sustain factory utilization improvements, supply customers across the auto market, and realize demand for their products in the auto industry. In addition, they may have concerns about their declining cash balance, the sustainability of favorable macro and auto industry tailwinds, and their portfolio rationalization. Finally, management may lack confidence in their ability to expand their gross margins and further reduce manufacturing costs
ON Semiconductor is engaged in energy efficient electronics. The company is organized into three segments: Power Solutions Group, which provides a range of discrete, module and integrated semiconductor products; Analog Solutions Group, which designs and develops analog, mixed-signal, and advanced logic application specific integrated circuits and Application Specific Standard Product, and power solutions; and Image Sensor Group, which designs and develops complementary metal oxide semiconductor and charge-coupled device image sensors, as well as proximity sensors, image signal processors and actuator drivers for autofocus and image stabilization for automotive and industrial markets, among others.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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