In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

ON Semiconductor Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 18.54%
0¹	FCFF₀	505,498
1	FCFF₁	560,243	= 505,498 × (1 + 10.83%)	472,600
2	FCFF₂	629,298	= 560,243 × (1 + 12.33%)	447,808
3	FCFF₃	716,278	= 629,298 × (1 + 13.82%)	429,967
4	FCFF₄	825,998	= 716,278 × (1 + 15.32%)	418,263
5	FCFF₅	964,881	= 825,998 × (1 + 16.81%)	412,156
5	Terminal value (TV₅)	65,122,173	= 964,881 × (1 + 16.81%) ÷ (18.54% – 16.81%)	27,817,441
Intrinsic value of ON Semiconductor Corp. capital				29,998,234
Less: Long-term debt and financing lease liabilities, including current portion (fair value)				3,996,800
Intrinsic value of ON Semiconductor Corp. common stock				26,001,434

Intrinsic value of ON Semiconductor Corp. common stock (per share)				$60.44
Current share price				$70.01

Based on: 10-K (reporting date: 2023-12-31).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

ON Semiconductor Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	30,120,535	0.88	20.71%
Long-term debt and financing lease liabilities, including current portion (fair value)	3,996,800	0.12	2.22%	= 2.71% × (1 – 17.92%)

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 430,231,889 × $70.01
= $30,120,534,548.89

Long-term debt and financing lease liabilities, including current portion (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (13.80% + 19.40% + 12.70% + 21.00% + 22.70%) ÷ 5
= 17.92%

WACC = 18.54%

FCFF growth rate (g) implied by PRAT model

ON Semiconductor Corp., PRAT model

	Average	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in thousands)
Interest expense		74,800)	94,900)	130,400)	168,400)	148,300)
Net income attributable to ON Semiconductor Corporation		2,183,700)	1,902,200)	1,009,600)	234,200)	211,700)

Effective income tax rate (EITR)¹		13.80%	19.40%	12.70%	21.00%	22.70%

Interest expense, after tax²		64,478)	76,489)	113,839)	133,036)	114,636)
Interest expense (after tax) and dividends		64,478)	76,489)	113,839)	133,036)	114,636)

EBIT(1 – EITR)³		2,248,178)	1,978,689)	1,123,439)	367,236)	326,336)

Current portion of financing lease liabilities		800)	14,200)	12,700)	—)	—)
Current portion of long-term debt		794,000)	147,800)	160,700)	531,600)	736,000)
Long-term debt, excluding current portion		2,542,600)	3,045,700)	2,913,900)	2,959,700)	2,876,500)
Long-term financing lease liabilities		22,400)	23,000)	10,200)	—)	—)
Total ON Semiconductor Corporation stockholders’ equity		7,782,600)	6,188,500)	4,585,400)	3,538,500)	3,301,700)
Total capital		11,142,400)	9,419,200)	7,682,900)	7,029,800)	6,914,200)
Financial Ratios
Retention rate (RR)⁴		0.97	0.96	0.90	0.64	0.65
Return on invested capital (ROIC)⁵		20.18%	21.01%	14.62%	5.22%	4.72%
Averages
RR	0.82
ROIC	13.15%

FCFF growth rate (g)⁶	10.83%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 74,800 × (1 – 13.80%)
= 64,478

³ EBIT(1 – EITR) = Net income attributable to ON Semiconductor Corporation + Interest expense, after tax
= 2,183,700 + 64,478
= 2,248,178

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,248,178 – 64,478] ÷ 2,248,178
= 0.97

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,248,178 ÷ 11,142,400
= 20.18%

⁶ g = RR × ROIC
= 0.82 × 13.15%
= 10.83%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (34,117,335 × 18.54% – 505,498) ÷ (34,117,335 + 505,498)
= 16.81%

where:

Total capital, fair value₀ = current fair value of ON Semiconductor Corp. debt and equity (US$ in thousands)
FCFF₀ = the last year ON Semiconductor Corp. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of ON Semiconductor Corp. capital

FCFF growth rate (g) forecast

ON Semiconductor Corp., H-model

Year	Value	g_t
1	g₁	10.83%
2	g₂	12.33%
3	g₃	13.82%
4	g₄	15.32%
5 and thereafter	g₅	16.81%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 10.83% + (16.81% – 10.83%) × (2 – 1) ÷ (5 – 1)
= 12.33%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 10.83% + (16.81% – 10.83%) × (3 – 1) ÷ (5 – 1)
= 13.82%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 10.83% + (16.81% – 10.83%) × (4 – 1) ÷ (5 – 1)
= 15.32%

ON Semiconductor Corp. (NASDAQ:ON)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast