Jefferies Takes A Positive View Of ON Semiconductor's Acquisition Of Fairchild Semiconductor

Jefferies maintained its Hold rating on ON Semiconductor Corp (NASDAQ: ON) despite the company completing its $2.4 billion takeover of Fairchild Semiconductor as it waits for the company to execute on synergies and deleveraging.

ON Semiconductor said the acquisition would add $0.20 to 2017 EPS, upon recognizing $160 million in run rate synergies. ON expects 2018/2019 synergies of $200 million/$225 million and EPS accretion of $0.38/$0.43.

"We expect near term synergies in both front-end and back-end manufacturing, and opex savings, and longer term (1-2 yrs) synergies on the top line," analyst Mark Lipacis wrote in a note.

ON believes the acquisition will accelerate its progress towards its target operating model of non-GAAP gross margins of 40 percent and non-GAAP operating margins in the range of 17-19 percent.

Lipacis, who increased the price target to $13 from $10.50, raised his 2016/2017 revenue estimate to $3.94 billion/$5.10 billion from $3.50 billion/$3.62 billion. On the bottom line, the analyst now expects 2016/2017 EPS at $0.86/$1.20 (previously $0.85/$1.00).

"Given the current valuation and our belief that the integration risk remains, we remain Hold rated. However, we view the acquisition as a positive and could be more constructive with execution on cost synergies and deleveraging," Lipacis added.

At time of writing, shares of ON Semiconductor rose 1.56 percent to $11.70.