Susquehanna Analysts Go Back To Fairchild Semiconductor After Downgrade One Year Ago

• Fairchild Semiconductor Intl Inc FCS shares are down 19 percent year-to-date, although they hit a 52-week high of $20.74 on May 18.
• Susquehanna’s Chris Caso upgraded the rating on the company from Neutral to Positive, while raising the price target from $17 to $18.
• Caso believes that new opex cuts and declining depreciation should drive strong free cash flow growth at the company.

Analyst Chris Caso mentioned that the rating on Fairchild Semiconductor had been downgraded last year after the company outlined its cost reduction initiatives. He added, however, that although these cost reductions are to become effective now, weaker market conditions have blurred their impact.

The execution track record of Fairchild Semiconductors’ management has been inconsistent over the past several years. Caso added, however, that the company’s stock valuation had to be taken into account.

While Fairchild Semiconductors gave a negative 3Q preannouncement, it indicated to significant new reductions in its operating expenditure. “In addition to the reduced opex guidance for 3Q ($90-$92 mln vs. $95-$97 mln previously), the company announced a program intended to reduce opex by $30-$34 mln annually, with reductions implemented by 4Q15,” Caso wrote.

The new reductions would boost operating margins in 2016 by about 350bps, based on Susquehanna’s revenue estimates. Potential catalysts for Fairchild Semiconductor’s stock include the announcement of the company’s 3Q earnings in October, Caso said.