Stock Analysis: On Semiconductor (ONNN)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash

 This evening, On Semiconductor announced their fourth quarter and fiscal year 2013 results.  As I last talked, these results were really going to guide how I wanted to proceed with my stock ownership.  Unexpected by me, On managed to deliver $0.17 earnings on $718 million in revenues, beating on both the top and bottom lines.  This was truly impressive as the Sanyo Semiconductor division, now called Systems Solutions Group (SSG) managed to deliver break-even results, which wasn't expected.  Core focus areas for the company's products are in the automotive, smart phone, and select industrial areas and this focus appears to be panning out well for them at this point.  Their revenues from this area have been out performing their peers and they are expecting continued growth as they take share.  Guidance for the next quarter is in line with expectations as seasonal impacts start to take effect.  At this time, the stock is trading at 14.6 times this year's earnings compared to 17.6 times earnings for the S&P 500 and the 22x earnings for the semiconductor space.  Considering this turnaround is just starting, this stock doesn't deserve a premium, but it is fair to think it could trade at 17 times next year's earnings, which I'm estimating at $0.63/share.  This puts me at a $10 price target.  If the world economy takes a hit, this stock could easily be taken down to between $7.75 and $8.  I now consider this stock to be a 1 based on risk/reward.  With the coming jobs report and the overall unease in the market lately, I'm likely to wait until the stock drops below $8.10 before I'd add some to my portfolio.