ON Semiconductor (ONNN): Share price defines bullish 'pennant'

Posted May 13th 2008 12:25PM by Larry Schutts
Filed under: Earnings Reports, Analyst Upgrades and Downgrades, Nokia Corp. (NOK), Sony Corp ADR (SNE), Texas Instruments (TXN), Technical Analysis, Stocks to Buy

ON Semiconductor (NASDAQ: ONNN) designs and manufactures a wide variety of power and data management semiconductors for customers in the automotive, communications, computer, medical, industrial and military/aerospace markets. It operates a network of manufacturing facilities, sales offices and design centers in key markets throughout North America, Europe and the Asia Pacific region. Top clients include Nokia (NYSE: NOK) and Sony (NYSE: SNE). Texas Instruments (NYSE: TXN) is a major competitor.

The firm pleased investors last week, when it reported Q1 EPS of 21 cents and revenues of $421.9 million. Analysts had been looking for 14 cents and $386.9 million. Management also guided Q2 revenues to $545-$560 million ($400.6M consensus). Canaccord Adams subsequently upgraded the shares to "buy". Kaufman Brothers, Lehman Brothers and Wedbush Morgan reiterated their "buy" ratings.

The ONNN stock price popped on the news, pushing above its 200-day moving average curve for the first time in over six months. Shares are now consolidating that move, as they cycle in a bullish "pennant" pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with seven "strong buys", six "buys" and three "holds". Analysts see a 34% growth rate, through the next year. The ONNN P/E ratio (14.32), PEG ratio (1.14), Price to Sales ratio (2.38), Price to Book ratio (3.93), Price to Cash Flow ratio (12.49), Price to Free Cash Flow ratio (13.56), EPS Growth rate (16.67%) and Return on Equity (50.89%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 85% of the outstanding shares. Over the past 52 weeks, ONNN has traded between $4.86 and $13.15. A stop-loss of $8.40 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.

Tags: fundamental analysis, FundamentalAnalysis, momentum, ON Semiconductor, ONNN, OnSemiconductor, pennant, technical analysis, TechnicalAnalysis