UPDATE: Credit Suisse Upgrades ON Semiconductor After Sanyo Headwinds End

In a report published Tuesday, Credit Suisse analyst John Pitzer upgraded ON Semiconductor Corp.

to Outperform from Neutral, raising its price target to $12.00 from $8.00. According to the report, while analysts maintain their CY13E and CY14E EPS of $0.52 and $0.67 versus street consensus of $0.53 and $0.70, it is expected an upward bias when the company reports in early Feb. based on bookings trends that showed improving linearity throughout C4QE, especially in industrial, auto and PCs “Our upgrade is based upon three key drivers: (1) after 11 quarters, the Sanyo acquisition is no longer a headwind to profitability and is likely able to drive $0.05-0.07 cents of accretion to 2014 even on down y/y revenue, (2) management has little to no appetite for large acquisitions allowing them to focus on driving the operating model to target (41% GM versus C4QE GM of 34.3%) and to prioritize cash flow to buy back stock ($30.2m in C3Q13 versus $75.3m TTM and authorization of $202.4m) and (3) potential market share gains in power management in PCs from both ISIL and TXN,” the report noted. “Our analysis suggests that ONNN has EPS potential of $1.00 at target GM and $0.10 more EPS potential at peak GM than FCS (UP), despite trading at 12.0 times FTM EPS versus 17.9x for FCS and have significantly less exposure to handsets (~10% versus 25% for FCS). We see a compelling argument for an ONNN/FCS pair trade.” ONNN closed Monday at $8.64.