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Why On Semiconductor Stock Just Jumped 15%

By Rich Smith – Nov 1, 2021 at 2:06PM

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The company crushed estimates in Q2, did it again in Q3, and is promising to beat once more in Q4.

What happened

Three months ago, shares of On Semiconductor (ON 6.38%) racked up double-digit gains after reporting a solid earnings beat relative to Wall Street expectations and, well ... "second verse, same as the first."

As of 1 p.m. EDT today, shares of this semiconductor stock are up 15.2% after the company delivered another earnings beat, for its fiscal Q3 2021. Instead of the $0.74-per-share profit and $1.71 billion in sales that Wall Street was expecting, this morning the company reported profits of $0.87 on sales of $1.74 billion.  

Glowing green arrow climbs up on a stock screen.

Image source: Getty Images.

So what

On Semiconductor set a record for quarterly revenue in Q3, up 32% year over year. When calculated according to generally accepted accounting principles (GAAP), however, earnings weren't quite as good as the $0.87 pro forma figure note above. Still, GAAP profits rose to nearly twice the company's $0.38 per share Q3 2020 GAAP profit. That was helped by strong gross profit margins, up 310 basis points year over year at 41.4%, and operating profit margins that did even better, rising 6 percentage points to 22.9% -- also a record.  

And CEO Hassane El-Khoury touched all the bases explaining how his company will keep growing in the future, saying it has "a rapidly expanding design-win funnel for disruptive applications [of its chips in] such as electric vehicles, ADAS, industrial automation, and alternative energy."

Now what

Looking ahead to Q4 2021, On Semiconductor is forecasting that revenue will grow as much as 27% in the year's final quarter, with sales ranging from $1.74 billion to $1.84 billion -- all numbers above the $1.72 billion in sales that Wall Street has predicted. Gross margins on that revenue also appear likely to widen, to a range of from 41.8% to 43.8%.

And on the bottom line, the company says it expects to earn between $0.67 and $0.78 per share, GAAP, and $0.89 to $1.01 per share pro forma -- you guessed it, all numbers that are well above estimates once again.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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