FBR Upgrades Fairchild Semi To Outperform, Highlights EPS-FCF 'Discrepancy'

In a report published Friday, FBR analyst Christopher Rolland upgraded the rating on Fairchild Semiconductor Intl., Inc. FCS to Outperform, while lowering the price target from $22 to $20, following a challenging quarter for the company and the 2016 FCF expectations.

The company reported disappointing results for 2Q15, along with worse-than-expected guidance, due to weakness at Samsung and weaker Chinese appliance shipments.

"Also disappointing were 2Q15 gross margins, as we now expect the Fairchild GM expansion story driven by the manufacturing restructuring program to begin off a lower base and peak between 37 percent and 38 percent," Rolland stated.

Although the weak gross margin guidance was unexpected, the analyst believes that top line risks were already reflected in the sentiment and valuation, with the stock dropping 20 percent in the weeks before the announcement.

The analyst also mentioned that there was considerable discrepancy between the company's EPS and FCF/share, with the 2016 FCF/share guidance being higher than the EPS forecast.

In addition, the analyst believes that the increasing iPhone shipments as well as China Inc handsets would alleviate the risks to the 4Q15 expectations. The company is also expected to see server opportunities in 2H15.

Fairchild Semiconductor is expected to buyback shares on Friday, since the blackout period has ended.