Intrinsic value of ON Semiconductor - ON

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$14.18

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$14.18

 
Intrinsic value

$91.62

 
Up/down potential

+546%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ON stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 6.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.76
  50.10
  45.59
  41.53
  37.88
  34.59
  31.63
  28.97
  26.57
  24.41
  22.47
  20.73
  19.15
  17.74
  16.46
  15.32
  14.29
  13.36
  12.52
  11.77
  11.09
  10.48
  9.93
  9.44
  9.00
  8.60
  8.24
  7.91
  7.62
  7.36
  7.12
Revenue, $m
  3,907
  5,864
  8,538
  12,084
  16,661
  22,424
  29,517
  38,068
  48,183
  59,946
  73,417
  88,633
  105,609
  124,342
  144,813
  166,995
  190,851
  216,343
  243,433
  272,083
  302,263
  333,950
  367,127
  401,789
  437,939
  475,590
  514,768
  555,506
  597,850
  641,854
  687,581
Variable operating expenses, $m
 
  4,950
  7,165
  10,102
  13,893
  18,667
  24,542
  31,625
  40,003
  49,747
  60,906
  73,417
  87,479
  102,995
  119,952
  138,326
  158,087
  179,203
  201,641
  225,373
  250,372
  276,619
  304,100
  332,812
  362,755
  393,943
  426,395
  460,140
  495,214
  531,663
  569,540
Fixed operating expenses, $m
 
  271
  277
  284
  291
  299
  306
  314
  322
  330
  338
  346
  355
  364
  373
  382
  392
  402
  412
  422
  433
  443
  454
  466
  478
  489
  502
  514
  527
  540
  554
Total operating expenses, $m
  3,585
  5,221
  7,442
  10,386
  14,184
  18,966
  24,848
  31,939
  40,325
  50,077
  61,244
  73,763
  87,834
  103,359
  120,325
  138,708
  158,479
  179,605
  202,053
  225,795
  250,805
  277,062
  304,554
  333,278
  363,233
  394,432
  426,897
  460,654
  495,741
  532,203
  570,094
Operating income, $m
  322
  644
  1,096
  1,698
  2,476
  3,458
  4,669
  6,129
  7,858
  9,869
  12,174
  14,870
  17,775
  20,983
  24,488
  28,287
  32,373
  36,739
  41,380
  46,288
  51,459
  56,888
  62,572
  68,511
  74,706
  81,158
  87,871
  94,853
  102,109
  109,650
  117,487
EBITDA, $m
  686
  1,166
  1,814
  2,676
  3,790
  5,194
  6,925
  9,011
  11,481
  14,355
  17,647
  21,366
  25,516
  30,096
  35,101
  40,526
  46,360
  52,595
  59,221
  66,229
  73,612
  81,363
  89,479
  97,959
  106,803
  116,014
  125,599
  135,566
  145,926
  156,692
  167,881
Interest expense (income), $m
  107
  132
  229
  362
  538
  766
  1,052
  1,404
  1,829
  2,332
  2,916
  3,585
  4,341
  5,185
  6,115
  7,132
  8,234
  9,419
  10,686
  12,032
  13,455
  14,954
  16,529
  18,177
  19,899
  21,695
  23,565
  25,512
  27,536
  29,639
  31,825
Earnings before tax, $m
  181
  512
  867
  1,336
  1,938
  2,693
  3,617
  4,725
  6,029
  7,538
  9,258
  11,285
  13,434
  15,798
  18,373
  21,154
  24,138
  27,320
  30,694
  34,256
  38,004
  41,933
  46,044
  50,335
  54,807
  59,463
  64,306
  69,341
  74,574
  80,011
  85,662
Tax expense, $m
  -4
  138
  234
  361
  523
  727
  977
  1,276
  1,628
  2,035
  2,500
  3,047
  3,627
  4,265
  4,961
  5,712
  6,517
  7,376
  8,287
  9,249
  10,261
  11,322
  12,432
  13,590
  14,798
  16,055
  17,363
  18,722
  20,135
  21,603
  23,129
Net income, $m
  182
  374
  633
  975
  1,415
  1,966
  2,640
  3,449
  4,401
  5,502
  6,758
  8,238
  9,807
  11,533
  13,412
  15,443
  17,621
  19,943
  22,407
  25,007
  27,743
  30,611
  33,612
  36,744
  40,009
  43,408
  46,943
  50,619
  54,439
  58,408
  62,533

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,028
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,924
  8,845
  12,878
  18,226
  25,130
  33,822
  44,520
  57,417
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,421
  251,878
  287,860
  326,310
  367,169
  410,382
  455,903
  503,695
  553,736
  606,016
  660,541
  717,331
  776,422
  837,868
  901,735
  968,105
  1,037,076
Adjusted assets (=assets-cash), $m
  5,896
  8,845
  12,878
  18,226
  25,130
  33,822
  44,520
  57,417
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,421
  251,878
  287,860
  326,310
  367,169
  410,382
  455,903
  503,695
  553,736
  606,016
  660,541
  717,331
  776,422
  837,868
  901,735
  968,105
  1,037,076
Revenue / Adjusted assets
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
Average production assets, $m
  2,261
  3,395
  4,943
  6,997
  9,647
  12,984
  17,090
  22,041
  27,898
  34,709
  42,509
  51,319
  61,148
  71,994
  83,847
  96,690
  110,503
  125,263
  140,948
  157,536
  175,010
  193,357
  212,567
  232,636
  253,566
  275,367
  298,051
  321,638
  346,155
  371,633
  398,109
Working capital, $m
  1,366
  1,337
  1,947
  2,755
  3,799
  5,113
  6,730
  8,679
  10,986
  13,668
  16,739
  20,208
  24,079
  28,350
  33,017
  38,075
  43,514
  49,326
  55,503
  62,035
  68,916
  76,141
  83,705
  91,608
  99,850
  108,435
  117,367
  126,655
  136,310
  146,343
  156,768
Total debt, $m
  3,622
  5,329
  8,418
  12,515
  17,803
  24,462
  32,657
  42,536
  54,222
  67,813
  83,377
  100,957
  120,570
  142,213
  165,865
  191,492
  219,055
  248,507
  279,805
  312,906
  347,775
  384,385
  422,716
  462,763
  504,528
  548,029
  593,293
  640,361
  689,283
  740,123
  792,954
Total liabilities, $m
  5,068
  6,775
  9,864
  13,961
  19,249
  25,908
  34,103
  43,982
  55,668
  69,259
  84,823
  102,403
  122,016
  143,659
  167,311
  192,938
  220,501
  249,953
  281,251
  314,352
  349,221
  385,831
  424,162
  464,209
  505,974
  549,475
  594,739
  641,807
  690,729
  741,569
  794,400
Total equity, $m
  1,856
  2,070
  3,013
  4,265
  5,880
  7,914
  10,418
  13,436
  17,006
  21,157
  25,912
  31,282
  37,274
  43,885
  51,111
  58,939
  67,359
  76,357
  85,917
  96,029
  106,681
  117,865
  129,574
  141,808
  154,567
  167,855
  181,683
  196,061
  211,006
  226,537
  242,676
Total liabilities and equity, $m
  6,924
  8,845
  12,877
  18,226
  25,129
  33,822
  44,521
  57,418
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,422
  251,877
  287,860
  326,310
  367,168
  410,381
  455,902
  503,696
  553,736
  606,017
  660,541
  717,330
  776,422
  837,868
  901,735
  968,106
  1,037,076
Debt-to-equity ratio
  1.952
  2.570
  2.790
  2.930
  3.030
  3.090
  3.130
  3.170
  3.190
  3.210
  3.220
  3.230
  3.230
  3.240
  3.250
  3.250
  3.250
  3.250
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.270
  3.270
  3.270
  3.270
  3.270
Adjusted equity ratio
  0.140
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  182
  374
  633
  975
  1,415
  1,966
  2,640
  3,449
  4,401
  5,502
  6,758
  8,238
  9,807
  11,533
  13,412
  15,443
  17,621
  19,943
  22,407
  25,007
  27,743
  30,611
  33,612
  36,744
  40,009
  43,408
  46,943
  50,619
  54,439
  58,408
  62,533
Depreciation, amort., depletion, $m
  364
  522
  718
  978
  1,314
  1,736
  2,256
  2,883
  3,624
  4,486
  5,473
  6,496
  7,740
  9,113
  10,614
  12,239
  13,988
  15,856
  17,841
  19,941
  22,153
  24,476
  26,907
  29,448
  32,097
  34,857
  37,728
  40,714
  43,817
  47,042
  50,394
Funds from operations, $m
  600
  896
  1,351
  1,953
  2,729
  3,702
  4,896
  6,332
  8,025
  9,988
  12,231
  14,734
  17,547
  20,646
  24,026
  27,682
  31,609
  35,800
  40,248
  44,948
  49,896
  55,087
  60,519
  66,192
  72,106
  78,265
  84,671
  91,333
  98,256
  105,450
  112,927
Change in working capital, $m
  19
  446
  610
  808
  1,044
  1,314
  1,617
  1,950
  2,306
  2,682
  3,071
  3,469
  3,870
  4,271
  4,667
  5,057
  5,439
  5,812
  6,176
  6,532
  6,881
  7,225
  7,564
  7,903
  8,242
  8,585
  8,933
  9,288
  9,654
  10,033
  10,426
Cash from operations, $m
  581
  1,110
  741
  1,145
  1,685
  2,388
  3,279
  4,382
  5,719
  7,306
  9,160
  11,265
  13,677
  16,375
  19,358
  22,625
  26,169
  29,987
  34,072
  38,416
  43,015
  47,862
  52,955
  58,289
  63,864
  69,680
  75,739
  82,044
  88,601
  95,417
  102,501
Maintenance CAPEX, $m
  0
  -286
  -430
  -626
  -886
  -1,221
  -1,643
  -2,163
  -2,790
  -3,531
  -4,394
  -5,381
  -6,496
  -7,740
  -9,113
  -10,614
  -12,239
  -13,988
  -15,856
  -17,841
  -19,941
  -22,153
  -24,476
  -26,907
  -29,448
  -32,097
  -34,857
  -37,728
  -40,714
  -43,817
  -47,042
New CAPEX, $m
  -211
  -1,135
  -1,548
  -2,053
  -2,650
  -3,337
  -4,107
  -4,951
  -5,857
  -6,811
  -7,800
  -8,810
  -9,829
  -10,846
  -11,853
  -12,843
  -13,813
  -14,760
  -15,685
  -16,588
  -17,474
  -18,347
  -19,210
  -20,069
  -20,931
  -21,800
  -22,684
  -23,588
  -24,517
  -25,478
  -26,476
Cash from investing activities, $m
  -2,435
  -1,421
  -1,978
  -2,679
  -3,536
  -4,558
  -5,750
  -7,114
  -8,647
  -10,342
  -12,194
  -14,191
  -16,325
  -18,586
  -20,966
  -23,457
  -26,052
  -28,748
  -31,541
  -34,429
  -37,415
  -40,500
  -43,686
  -46,976
  -50,379
  -53,897
  -57,541
  -61,316
  -65,231
  -69,295
  -73,518
Free cash flow, $m
  -1,854
  -311
  -1,236
  -1,534
  -1,851
  -2,170
  -2,471
  -2,732
  -2,928
  -3,036
  -3,034
  -2,926
  -2,648
  -2,212
  -1,608
  -832
  117
  1,240
  2,531
  3,986
  5,599
  7,363
  9,269
  11,313
  13,486
  15,783
  18,198
  20,729
  23,371
  26,122
  28,983
Issuance/(repayment) of debt, $m
  2,258
  2,261
  3,089
  4,097
  5,288
  6,658
  8,195
  9,879
  11,686
  13,591
  15,564
  17,580
  19,613
  21,643
  23,652
  25,628
  27,563
  29,453
  31,298
  33,101
  34,869
  36,609
  38,331
  40,046
  41,766
  43,501
  45,264
  47,067
  48,922
  50,840
  52,831
Issuance/(repurchase) of shares, $m
  30
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,265
  2,261
  3,089
  4,097
  5,288
  6,658
  8,195
  9,879
  11,686
  13,591
  15,564
  17,580
  19,613
  21,643
  23,652
  25,628
  27,563
  29,453
  31,298
  33,101
  34,869
  36,609
  38,331
  40,046
  41,766
  43,501
  45,264
  47,067
  48,922
  50,840
  52,831
Total cash flow (excl. dividends), $m
  411
  1,950
  1,853
  2,563
  3,437
  4,488
  5,724
  7,147
  8,758
  10,555
  12,531
  14,654
  16,965
  19,431
  22,044
  24,796
  27,680
  30,692
  33,829
  37,087
  40,468
  43,972
  47,601
  51,359
  55,251
  59,284
  63,463
  67,796
  72,293
  76,962
  81,814
Retained Cash Flow (-), $m
  -248
  -688
  -944
  -1,251
  -1,615
  -2,034
  -2,503
  -3,018
  -3,570
  -4,152
  -4,755
  -5,370
  -5,991
  -6,611
  -7,225
  -7,829
  -8,420
  -8,997
  -9,561
  -10,112
  -10,652
  -11,184
  -11,710
  -12,234
  -12,759
  -13,289
  -13,827
  -14,378
  -14,945
  -15,531
  -16,139
Prev. year cash balance distribution, $m
 
  474
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,737
  909
  1,311
  1,822
  2,454
  3,220
  4,129
  5,188
  6,403
  7,776
  9,283
  10,973
  12,820
  14,819
  16,967
  19,260
  21,695
  24,268
  26,976
  29,816
  32,788
  35,891
  39,126
  42,493
  45,995
  49,635
  53,418
  57,348
  61,431
  65,675
Discount rate, %
 
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
 
  1,614
  780
  1,030
  1,300
  1,578
  1,848
  2,094
  2,302
  2,457
  2,551
  2,571
  2,532
  2,430
  2,273
  2,072
  1,842
  1,596
  1,348
  1,109
  888
  692
  525
  387
  276
  192
  129
  84
  53
  32
  19
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. Its Application Products Group segment provides analog, mixed-signal, and advanced logic application specific integrated circuit and application specific standard product solutions; and solutions for voltage and current options, as well as foundry and manufacturing services, including integrated passive devices technology, integrated circuit (IC) design, packaging, and silicon technology offerings. The company’s Image Sensor Group segment offers complementary metal oxide semiconductor and charge-coupled device image sensors, proximity sensors, and image signal processors. Its Standard Products Group segment provides discrete and integrated semiconductor products that perform application functions, such as power switching, signal conditioning, circuit protection, signal amplification, and voltage reference; and develops lower capacitance protection and integrated signal conditioning products to support data transmission rates, micro packages, and switching and rectification technologies. The company’s System Solutions Group segment supplies analog and mixed signal ICs, digital signal processors, analog and digital tuners, intelligent power modules, and memory and discrete semiconductors. ON Semiconductor Corporation’s devices are used in various end-products, such as automotive electronics, smartphones, media tablets, wearable electronics, computers, servers, industrial building and home automation systems, consumer white goods, imaging systems, LED lighting, power supplies, networking and telecom equipment, medical diagnostics, imaging and hearing health, and sensor networks, as well as the Internet-of-Things. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. ON Semiconductor Corp. was founded in 1999 and is headquartered in Phoenix, Arizona.

FINANCIAL RATIOS  of  ON Semiconductor (ON)

Valuation Ratios
P/E Ratio 32.6
Price to Sales 1.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow 16.1
Growth Rates
Sales Growth Rate 11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 165.3%
Total Debt to Equity 195.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.4%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 11.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 33.9%
EBITDA Margin 16.7%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 8.2%
Oper. Margin - 3 Yr. Avg. 7.6%
Pre-Tax Margin 4.6%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate -2.2%
Eff/ Tax Rate - 3 Yr. Avg. 0.9%
Payout Ratio 0%

ON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ON stock intrinsic value calculation we used $3907 million for the last fiscal year's total revenue generated by ON Semiconductor. The default revenue input number comes from 2016 income statement of ON Semiconductor. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ON stock valuation model: a) initial revenue growth rate of 50.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.6%, whose default value for ON is calculated based on our internal credit rating of ON Semiconductor, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of ON Semiconductor.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ON stock the variable cost ratio is equal to 85.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $264 million in the base year in the intrinsic value calculation for ON stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for ON Semiconductor.

Corporate tax rate of 27% is the nominal tax rate for ON Semiconductor. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ON stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ON are equal to 57.9%.

Life of production assets of 7.9 years is the average useful life of capital assets used in ON Semiconductor operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ON is equal to 22.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1856 million for ON Semiconductor - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 421.562 million for ON Semiconductor is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of ON Semiconductor at the current share price and the inputted number of shares is $6.0 billion.


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Stock chart of ON Financial statements of ON
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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