A month has gone by since the last earnings report for ON Semiconductor Corp. (ON Quick QuoteON - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ON Semiconductor Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ON Semiconductor Q1 Earnings Top Estimates

ON Semiconductor Corporation reported first-quarter 2021 non-GAAP earnings of 35 cents per share, which outpaced the Zacks Consensus Estimate by 2.94%. Moreover, the figure soared 250% from the year-ago quarter’s level.

Revenues of $1.482 billion beat the Zacks Consensus Estimate by 1.33% and improved 16% on a year-over-year basis. The top line benefited from broad-based strength across industrial and automotive end-markets. Notably, for first-quarter 2021, the company had projected revenues in the range of $1.4 billion to $1.51 billion.

The company intends to expand margins by streamlining its manufacturing footprint and accelerate the timeline for production with investments in the 300mm fab in east Fishkill.

Top-Line in Detail

Business Units Metrics:

ON Semiconductor has three business units —

Power Solutions Group or PSG revenues of $747 million (14% of revenues) surged 20% year over year courtesy of strength in automotive, industrial and computing end-markets.

Advanced Solutions Group or ASG revenues of $531.5 million (36% of revenues) increased 14% on a year-over-year basis, led by strength in industrial and automotive, ASG benefited from strengthened computing, especially in high end graphic cards.

Intelligent Sensing Group or ISG revenues of $203 million (50% of revenues) improved 9% year over year, driven by strength in automotive and computing on the heels of strong momentum in work from home trend.

End-Market Metrics:

Automotive (34.7% of revenues) end-market revenues were $514.8 million, up 16.4% year over year. The upside was driven by strong momentum in automotive MOSFETs, lighting, vehicle electrification, CMOS image sensors, and ultrasonic products.

Solid traction in silicon carbide (SiC) and IGBT (or Insulated-Gate Bipolar Transistor) products for electric vehicles benefited performance.

Also, significant design wins across leading Tier 1 and global electric vehicle OEMs, especially companies that have recently launched marquee platforms, was encouraging. Management expects the new wins to ramp starting in late '21 and contribute to growth over the next few years.

ON Semiconductor’s strength lies in its expertise in packaging, which is vital for improving heat dissipation and reducing the footprint of the module; enabling it to secure noteworthy design wins.

Markedly, the company holds a competitive edge over its peers when it comes to delivering silicon carbide traction modules for autonomous driving applications and ADAS. In automotive vertical, ON Semiconductor’s comprehensive image sensor solution secured a platform win for up to 11 image sensors on a single vehicle, during the first quarter, which is expected to ramp in 2022.

Industrial/Medical/Mil-Aero (25%) end-market revenues increased 16.7% year over year to $370.7 million driven by broad-based demand for power modules. The company’s power modules are witnessing strong uptake along with its alternative energy related applications.

However, certain customer-specific concerns stemming from geopolitical issues were the offsetting factors, excluding which first-quarter industrial revenues increased by 22%.

Nevertheless, the company is making progress with customer engagement into the EV infrastructure. In fact, ON Semiconductor clinched first design win for its SiC power modules for a charging application across an emerging electric vehicle OEM.

Communications (15.5%) end-market revenues declined 10% year over year to $229.8 million.

Computing (14.1%) end-market revenues increased 54.3% year over year to $208.3 million.

Consumer (10.7%) end-market revenues amounted to $158 million, up 24.1% from the year-ago quarter’s figures.

Margin Details

Non-GAAP gross margin of 35.2% expanded 370 basis points (bps) on a year-over-year basis. Per management, the improvement was led by favorable mix to higher margin products, improvement in utilization and focus on stringent cost control measures. ON Semiconductor’s fab lighter strategy is expected to help it in reducing manufacturing footprint and consequently optimize the mix of products within its fabs to minimize overall costs.

Non-GAAP operating expenses climbed 1.9% from the year-ago quarter’s figure to $324.7 million.

Non-GAAP operating margin expanded 670 bps on a year-over-year basis to 13.3%, courtesy of higher revenue base and improvement in gross margin.

Balance Sheet & Cash Flow

As of Apr 2, 2021, ON Semiconductor had cash and cash equivalents of $1.043 billion compared with $1.081 billion as of Dec 31, 2020. The company also has access to $1.42 billion undrawn on its revolver.

As of Apr 2, 2021, the company had total debt (including current portion) of $3.34 billion compared with $3.49 billion as of Dec 31, 2020. The company paid down $154 million debt in the quarter.

During the reported quarter, cash from operations amounted to $218.5 million (or 15% of revenue) compared with the prior-quarter’s figure of $400.4 million.

Capital expenditure during the first quarter was $77 million, which equates to capital intensity of 5.2%, compared with $116.4 million in the previous quarter.

As a result, free cash flow amounted to $141.5 million compared with $284 million in the previous quarter.

Guidance

For second-quarter 2021, ON Semiconductor projects revenues in the range of $1.57 billion to $1.67 billion.

For the second quarter, non-GAAP gross margin is projected in the range of 35.8-37.8%. Non-GAAP operating expenses are expected to be $323-$337 million.

Non-GAAP earnings per share are envisioned between 44 cents and 54 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 22% due to these changes.

VGM Scores

Currently, ON Semiconductor Corp. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ON Semiconductor Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.