ON – Base Case iCDS 57bps, Negative Case iCDS 72bps 2028 3.875% Bond YTW of 5.427%, iYTW of 4.110%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa2) Rating from Valens, Low Refinancing Need
September 13, 2024
- Cash bond markets are overstating credit risk with a YTW of 5.427% relative to an Intrinsic YTW of 4.110% and an Intrinsic CDS of 57bps. Meanwhile, Moody’s is overstating ON’s fundamental credit risk, with its Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) rating.
- Incentives Dictate Behavior™ analysis highlights mostly negative signals for credit holders. That said, as a positive, management members are material owners of ON equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
- Earnings Call Forensics™ of the firm’s Q2 2024 (07/29/2024) earnings call highlights that management is confident they allocated 72% of its free cash flow for share buybacks and that its gross margin consistency is evidence of structural improvements in its business. In addition, management is confident its AI and data center business growth was 22% and that demand visibility allows them to set a $1.7-$1.8bn revenue target for Q3. Moreover, they are confident their long-term supply agreements help drive discussions with customers about new products and product ramp-up needs.
