Last update on 2024-06-07

ON Semiconductor (ON) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Discover the Piotroski F-Score analysis for ON Semiconductor (ON) in 2023. A detailed evaluation of profitability, liquidity, and operating efficiency with a final score of 4/9.

Short Analysis - Piotroski Score: 4

We're running ON Semiconductor (ON) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

ON Semiconductor (ON) was assessed using the Piotroski 9-criteria scoring system, achieving a score of 4 out of 9. The analysis covered areas such as profitability, liquidity, and operational efficiency. ON Semiconductor showed positive net income and positive cash flow from operations. However, the company's ROA decreased slightly, and its operating cash flow was lower than its net income, signaling potential quality issues. Leveraging increased, indicating higher financial risk, and its current ratio slightly decreased, pointing to minor liquidity concerns. Despite some positive trends, like a reduction in shares outstanding, the asset turnover ratio also fell, highlighting a dip in operational efficiency.

Insights for Value Investors Seeking Stable Income

ON Semiconductor's Piotroski score of 4 suggests it is in a relatively weak financial position compared to higher-scoring companies. While there are some positive aspects, such as a positive net income and cash flow from operations, there are notable concerns, including declining ROA, increasing leverage, and a decreasing asset turnover ratio. As a potential investor, this mixed financial health signals that further investigation is needed before considering an investment in ON Semiconductor. Looking into additional factors, such as market conditions and future growth prospects, may provide better insight into the company's long-term potential.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of ON Semiconductor (ON)

Company has a positive net income?

Net income is a crucial measure of a company's profitability indicating the difference between total revenue and total expenses.

The net income for ON Semiconductor (ON) in 2023 is $2,183,700,000, which is positive. Over the past 20 years, ON has experienced fluctuations in net income, with some years reflecting losses, such as -$166.7 million in 2003 and -$90.6 million in 2012. However, the recent trend shows a strong improvement, with net income increasing significantly from $1,009.6 million in 2021 to $2,183.7 million in 2023. This positive trend bodes well for the company, indicating successful operations and effective cost management. Therefore, 1 point is added for a positive net income.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates a company's ability to generate cash from its normal business operations. It is a key measure of financial health.

For 2023, ON Semiconductor has reported a positive CFO of $1,977.5 million. Given this positive figure, the company merits 1 point according to the Piotroski analysis criterion. Historically, the company has generally maintained a positive trend in CFO over the past two decades, with the figure surpassing the billion-dollar mark multiple times (e.g., in 2017, 2021, 2022). This consistency highlights ON Semiconductor's robust ability to generate cash from its operations, underscoring its financial health and resilience.

Return on Assets (ROA) are growing?

Comparison of Return on Assets (ROA), a key profitability metric, over two years.

The Return on Assets (ROA) for ON Semiconductor decreased from 0.1762 in 2022 to 0.1734 in 2023, indicating a slight decline in asset efficiency for generating profits. This criterion results in a score of 0, as the ROA did not increase. Over the past 20 years, the industry's median ROA has shown higher values compared to ON Semiconductor, often exceeding 0.40. Despite this marginal decline, it is crucial to consider the operating cash flow, which continues to showcase substantial growth, highlighting underlying strengths.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income - This criterion assesses the quality of earnings, as cash flow from operations is harder to manipulate than net income.

In 2023, ON Semiconductor (ON) reported an Operating Cash Flow (OCF) of $1.97750 billion and a Net Income of $2.18370 billion. Since the OCF is lower than the Net Income, we assign 0 points for this criterion. This indicates that the company's earnings are lower in quality for the year, likely driven by non-cash items in net income. Over the last 20 years, the OCF and Net Income have shown irregular congruence, pinpointing potential volatility in accruals and other adjustments. For example, while the OCF was $2.6331 billion in 2022, surpassing the Net Income of $1.9022 billion, the scenario reversed in 2023, highlighting potential fluctuations in cash and earnings dynamics.

Liquidity of ON Semiconductor (ON)

Leverage is declining?

Change in leverage is crucial to gauge financial risk. Decreasing leverage signifies reduced debt reliance.

The leverage of ON Semiconductor has increased from 0.1941 in 2023 compared to 0.2562 in 2022. This trend is negative as an increase in leverage indicates a higher dependency on debt, elevating the company's financial risk. Historical data suggests a general decline over the last two decades, despite minor fluctuations, indicating an overall reduction in financial risk. However, the recent uptick warrants close monitoring.

Current Ratio is growing?

Understanding the change in the current ratio is crucial for firms to assess their ability to meet short-term liabilities with short-term assets.

The current ratio for ON Semiconductor has slightly decreased from 2.7794 in 2022 to 2.7076 in 2023, thus it has not increased and earns 0 points in the Piotroski Analysis. This downward trend, although minimal, reflects a slight deterioration in the company's short-term liquidity. Given that an industry median of 3.4213 indicates a healthier short-term financial position, ON Semiconductor must look into improving its liquidity ratio to remain competitive, despite the fact that its current ratio is still relatively robust.

Number of shares not diluted?

Change in Shares Outstanding measures the improvement in operational efficiency, often due to share buybacks.

Upon evaluating ON Semiconductor's shares outstanding, it is evident that there was a decrease from 433.2 million in 2022 to 430.7 million in 2023, thereby rewarding the company 1 Piotroski point. This trend is favorable, indicating that the company might have executed share buybacks, a strategic move to increase shareholder value. Historical data shows fluctuations, notably a high of 457.2 million in 2011 and a varying trend post-2018. This modest decrease aligns well with reclamation strategies to enhance per-share metrics.

Operating of ON Semiconductor (ON)

Cross Margin is growing?

Explain the criterion for ON Semiconductor (ON) and why it is important to consider

Gross Margin is a critical measure of a company's manufacturing and distribution efficiency. Specifically, for ON Semiconductor, it's indicative of how well the company converts its revenues into actual profit. While a higher gross margin is typically better as it indicates a more profitable core business, a decline could flag potential issues such as increased cost of goods sold or competitive pricing pressures.

Asset Turnover Ratio is growing?

Asset Turnover Ratio is calculated by dividing revenue by total average assets and measures the efficiency of a company's use of its assets to generate sales.

The Asset Turnover Ratio for ON Semiconductor has decreased from 0.7712 in 2022 to 0.6552 in 2023. This represents a decline rather than an increase, which results in zero points for this criterion. A decreasing Asset Turnover Ratio indicates that ON Semiconductor is generating less revenue per dollar of assets it owns. This trend is concerning as it suggests a decline in operational efficiency. Over the last 20 years, ON's Asset Turnover has generally followed a downward trend, peaking in the mid-2000s and fluctuating but not recovering to those levels. The drop from 2022 to 2023 continues this long-term trend, raising potential concerns about how effectively the company is utilizing its asset base to generate sales.