Shares of technology company ON Semiconductor (ONNN) hit a new 52-week high of $10.49 on Jan 9, eventually closing at $10.35. The company returned 22.11% last year and delivered a year-to-date return of roughly 1.56%. Average volume of shares traded over the last three months was roughly 6,682K.
What is Driving ON Semiconductor?
ON Semiconductor has a well-diversified business and an end-market focus that would typically generate relatively steady revenues throughout the year. The company stands to benefit from recent product introductions and numerous design wins in the automotive market. Also, the company has increased its market share growth in the CMOS Image Sensor market. According to the IHS Image Sensor Market Tracker, the company held approximately 6% of the $3.12 billion image sensor market in 2013.
The price appreciation may also be attributed to ON Semiconductor’s impressive record of returning cash to shareholders through dividends and share buybacks. Most recently, the company declared that it will repurchase $1.0 billion shares. Additionally, the company announced its decision to return approximately 80% of free cash flow, after repaying long-term debts.
We remain positive on the company’s strong cash position and ability to service its long-term debts. Moreover, continuous share buybacks will inspire investors’ loyalty through high returns.
Additionally, the company gained momentum from strong fundamentals and better-than-expected third-quarter results released on Oct 30. Since then, the stock has moved up more than 29.3%.
ON Semiconductor’s third-quarter top line increased 10% sequentially and 16.5% year over year to $833.5 million. The company benefitted from the broad-based strength in its end markets. However, non-GAAP earnings of 21 cents missed the Zacks Consensus Estimate by a penny due to order slowdowns.
For fourth-quarter 2014, ON Semiconductor projects revenues in the range of $835.0–$875.0 million, up 2.6% sequentially at the mid-point, driven by design wins across multiple markets and possible share gains. The relatively improved top-line projection further indicates that the company’s growth momentum is likely to continue.
Moreover, the Zacks Consensus Estimate for earnings jumped 32.3% for fiscal 2014 from the prior year. Additionally, the company has delivered an average earnings surprise of nearly 8.9% over the trailing four quarters. ON Semiconductor’s strong revenue growth, solid financial conditions, increasing market share in CMOS Image Sensor market and strong long-term growth potential position it favorably.
ON Semiconductor currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Some stocks that look promising in the industry are M/A-Com Technology Solutions Holdings, Inc. (MTSI), CSR plc (CSRE) and Microchip Technology Inc. (MCHP). While M/A-Com Technology Solutions sports a Zacks Rank #1(Strong Buy), CSR and Microchip have a Zacks Rank #2 (Buy).
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