Will ON Semiconductor (ON) Stock Be Helped by $2.4 Billion Fairchild Acquisition?

ON Semiconductor (ON) shares are falling in pre-market trading after the company
By Tony Owusu ,

NEW YORK (TheStreet) -- Shares of ON Semiconductor (ON) - Get Report are down by 0.37% to $10.70 in pre-market trading on Wednesday morning, after the company agreed to purchase rival Fairchild Semiconductor (FCS) for $2.4 billion today.

ON purchased Fairchild in a deal valued at about $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.

Today's 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 ON SEMICONDUCTOR CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate ON SEMICONDUCTOR CORP (ON) 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 revenue growth, solid stock price performance and growth in earnings per share. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 8.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 30.88% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • 40.27% is the gross profit margin for ON SEMICONDUCTOR CORP which we consider to be strong. Regardless of ON's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ON's net profit margin of 5.12% is significantly lower than the industry average.
  • ON's debt-to-equity ratio of 0.90 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.86 is weak.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, ON SEMICONDUCTOR CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: ON

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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