ON Semiconductor Lowered From Outperform To Underperform At Credit Suisse

ON Semiconductor Corp (NASDAQ: ON) has successfully completed its acquisition of Fairchild Semiconductor International, Inc. (Nasdaq: FCS). Since then, ON Semiconductor’s shares have risen 35 percent, outperforming the broader group by ~10 percentage points, Credit Suisse’s John W. Pitzer said in a report.

Pitzer downgrades the rating on the company from Outperform to Underperform, while reducing the price target from $17.50 to $13.50. He mentioned that although there is upside to the company’s Q1 and Q2 results, the stock is already trading at a high valuation. Moreover, with year-over-year Industry growth expected to peak by June, “we see shares at least fully valued.”

Historical Trends Indicate Downside

Stocks of the individual companies, ON Semiconductor and Fairchild, have historically underperformed following a year-over-year revenue peak, the analyst noted.

While expressing optimism regarding the prospects of the semiconductor segment, Pitzer mentioned that against the backdrop of a cyclical peak, he preferred the stocks of Texas Instruments Incorporated (NASDAQ: TXN), Analog Devices, Inc. (NASDAQ: ADI) and Microchip Technology Inc. (NASDAQ: MCHP).

“Although C1Q/C2Q earnings likely a positive catalyst, albeit somewhat obfuscated by a change to sell-in Rev recognition (our downgrade is perhaps early), we see higher quality assets at similar multiples with better risk/reward,” the analyst commented.

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