ON Semiconductor CorporationONNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $85.87 per share(market-calibrated)

+35.4%

Upside to Fair Value

Current

$63.42

Pure Model

$85.43

Fair Value

$85.87

Bull Case

$109.84

Bear Case

$63.75

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

4.32%

Calibrated Growth

3.89%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $85.43.

What's Driving This Ratingfor ON

↓

CapEx normalizing toward maintenance

Historical CapEx is 13.68% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$784M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 22.09% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.5B (24.39% margin).

→

Moderate revenue growth

Analyst consensus projects 4.80% revenue growth, fading to 3.75% by Year 10. Revenue reaches $10.2B (vs $6.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $59.62/share (15.7x terminal FCF) while exit multiple gives $111.24/share (36.8x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 4.32% is close to the model's 3.75% (only 57bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 76.00% indicates efficient cash generation. FCF reaches $2.7B by Year 10 (26.36% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.54

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.44%

Cost of Debt

Pre-tax Cost of Debt2.50%

Tax Rate5.86%

After-tax Cost of Debt2.35%

Equity Weight (E/V)88.26%

Debt Weight (D/V)11.74%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (88.26% × 11.44%) + (11.74% × 2.35%)

= 10.37%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$6.3B	$7.6B	$8.5B	$9.1B	$10.2B
EBIT	$1.4B	$1.7B	$2.0B	$2.2B	$2.5B
Tax	$81M	$99M	$115M	$127M	$146M
NOPAT	$1.3B	$1.6B	$1.8B	$2.0B	$2.3B
+ Depreciation	$647M	$787M	$873M	$940M	$1.0B
- Capex	$860M	$915M	$871M	$782M	$612M
- Δ NWC	$71M	$176M	$76M	$82M	$91M
Free Cash Flow	$1.0B	$1.3B	$1.8B	$2.1B	$2.7B
Discount Factor	0.906	0.744	0.611	0.501	0.373
Present Value	$926M	$955M	$1.1B	$1.1B	$1.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.7B

Terminal Growth Rate3.75%

WACC10.37%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$42.1B

PV of Terminal Value$15.7B

Exit Multiple Method

Year 10 EBITDA$3.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$99.0B

PV of Terminal Value$36.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$10.1B

PV of Terminal Value$15.7B

Enterprise Value$25.8B

(-) Net Debt$1.3B

Equity Value$24.5B

Shares Outstanding411M

Price per Share$59.62

Exit Multiple Method

PV of Projected FCFs$10.1B

PV of Terminal Value$36.9B

Enterprise Value$47.0B

(-) Net Debt$1.3B

Equity Value$45.7B

Shares Outstanding411M

Price per Share$111.24

Pure Model Fair Value

$85.43

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
8.37%	$104.78	$107.54	$110.89	$115.05	$120.36
9.37%	$92.62	$94.42	$96.55	$99.08	$102.16
10.37%	$82.76	$84.00	$85.43	$87.09	$89.04
11.37%	$74.53	$75.41	$76.41	$77.56	$78.87
12.37%	$67.50	$68.15	$68.88	$69.70	$70.62

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$63.75

0.5% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.93

Base Case

$85.43

34.7% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.54

Bull Case

$109.84

73.2% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.31

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.80%

Year 3 Revenue Growth10.26%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin22.09%

Terminal EBIT Margin25.00%

Tax Rate5.86%

Historical Capex / Rev13.68%

Terminal Capex / Rev6.00%

NWC / Revenue24.72%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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