ON Semiconductor Corporation (ON)

Conclusion

ON Semiconductor makes power, analog and image-sensing semiconductors for automotive, industrial, data-centre and mobile customers. At a price of 69.11 USD on 2026-11-09, the market capitalisation is 26.9 billion USD and the enterprise value is 27.2 billion USD.

The verdict is overvalued. The price-to-earnings ratio of 39.0x stands against a ten-year median of 22.4x, and EV/EBITDA of 16.5x against 12.5x. The fair value band runs from 34.54 to 51.81 USD with a midpoint of 43.17 USD, a margin of safety of -37.5%. The discounted cash flow gives 34.04 USD per share, and the fair value from historical multiples is 52.31 USD. The reverse DCF implies 16.1% annual growth, while revenue grew 2.7% a year over the last five years.

The balance sheet is the strongest part of the case: net debt to EBITDA of 0.21, an Altman Z-score of 4.57 and interest coverage of 15.2x. Free cash flow conversion over five years of 87.7% also supports the earnings. The weakest numbers are ROIC of 10.4% against a WACC of 14.0%, EPS down 58.9% over three years, and the price-to-earnings premium of 74.6% over its own history.

Financial health

Financial strength is green: all four assessed measures are good. The current ratio is 3.55 and the quick ratio 2.39, net debt to EBITDA is 0.21, and interest coverage is 15.2x. Debt to equity is 0.62. The Altman Z-score is 4.57, in the safe zone. Insolvency risk is low, about 0.2% by the estimate of the Ohlson model over one to two years, based on the balance sheet at 2025-12-31. Debt has not grown faster than revenue over five years, with the gap given as -2.8%. Liquidity and leverage give little reason for concern at these levels.

Earnings quality

Earnings quality is yellow: one measure is good, two are neutral and none is bad. Free cash flow conversion is 234.6% on a trailing basis but 87.7% over five years, so the recent year is far stronger than the longer run. The accrual ratio is -0.12, and stock-based compensation equals 2.35% of revenue, leaving free cash flow after it of 1.47 billion USD. The share count fell at an annual rate of 0.3% over five years. The Piotroski score is 4 of 9. The Beneish M-score is not available. The company beat estimates in 6 of the last 8 quarters, by 3.3% on average. Analysts raised current-year estimates more often than they cut them.

Profitability

Profitability is yellow. The gross margin is 38.4% against a ten-year median of 37.4%, and the operating margin is 13.1% against 13.8%. The net margin is 10.8% against 12.7%. The return on equity is 9.1%. The most important number is ROIC of 10.4% against a WACC of 14.0%, giving a ROIC minus WACC value of -3.6%, which means the company does not currently earn its cost of capital. The year-end 2025 DuPont split shows a net margin of 2.0%, an asset turnover of 0.48 and an equity multiplier of 1.63, so leverage adds little to the return. That split uses the 2025 year-end figures, so it is a snapshot of that year.

Growth

Growth is yellow. Revenue compound growth is -10.4% over three years, 2.7% over five and 5.5% over ten. Earnings per share fell at compound rates of -58.9% over three years, -12.1% over five and -4.8% over ten. Free cash flow per share grew 29.2% a year over five years, though it fell 1.1% over three. Revenue rose in 5 of the 10 comparable years. Analysts expect next-year earnings per share to grow 43.3%, which is the single good growth signal and rests entirely on forecasts.

Valuation

Valuation is red. The price-to-earnings ratio of 39.0x is 74.6% above its ten-year median of 22.4x, and EV/EBITDA of 16.5x is 31.6% above 12.5x. Price to sales of 4.22x is 36.1% above its median, and price to book of 3.56x is 0.6% above. Price to free cash flow of 16.6x is 14.8% below its median of 19.5x. The discounted cash flow gives 34.04 USD per share, using a discount rate of 15.65% and a long-term growth rate of 2.5%. The fair value band is 34.54 to 51.81 USD, and the margin of safety is -37.5%. These figures rest on fixed assumptions, including a 5% equity risk premium and capped growth, so they are an order of magnitude, not a price target. The company pays no dividend.

Risks

A weak ROIC below the cost of capital means each new dollar invested currently earns less than it costs, so the earnings base may not grow as the valuation assumes. The three-year fall in earnings per share of 58.9% and in revenue of 10.4% shows that the recent downturn has been deep. A beta of 2.15 means the share price can swing far more than the market. A price-to-earnings ratio of 39.0x leaves little room if earnings disappoint. The analysis has limits: it has no debt maturity schedule and no revenue by segment, and the Beneish M-score is not available. The DCF and fair value figures depend on the fixed assumptions described above.