Fairchild Semiconductor (FCS) Stock Spikes Following Merger With ON Semiconductor
NEW YORK (TheStreet) -- Shares of Fairchild Semiconductor International (FCS) are up by 9.79% to $19.63 in pre-market trading on Wednesday, after the company agreed to merge with rival ON Semiconductor (ON).
ON purchased Fairchild in a deal valued at about $2.4 billion, or $20 per share. The purchase price represents a 12% premium over Fairchild's closing price on Tuesday.
The purchase price is also a 41% premium over the stock's price before news broke last month that Fairchild was seeking a merger partner, according to the Wall Street Journal.
The Fairchild/ON merger continues a string of recent consolidation in the semiconductor industry. It follows Intel's (INTC) $16.7 billion purchase of Altera (ALTR) in June and Avago Technologies (AVGO) $37 billion purchase of Broadcom (BRCM) in May.
Separately, TheStreet Ratings team rates FAIRCHILD SEMICONDUCTOR INTL as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate FAIRCHILD SEMICONDUCTOR INTL (FCS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FCS's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, FCS has a quick ratio of 1.72, which demonstrates the ability of the company to cover short-term liquidity needs.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.8%. Since the same quarter one year prior, revenues fell by 10.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, FAIRCHILD SEMICONDUCTOR INTL's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $5.80 million or 89.25% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: FCS
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.