ON Semiconductor Corp (NASDAQ:ON) — Shares of ON stock jumped nearly 3% last week after the semiconductor company announced that it had received antitrust approval from the U.S. Federal Trade Commission to buy Fairchild Semiconductor International provided that it sell an automotive ignition business.
Analysts at S&P Capital IQ Equity Research say the deal should result in higher profit margins for ON Semiconductor, with Fairchild Semiconductor offering up “greater scale and complementary products.”
While Capital IQ forecasts revenue will decline 1.5% this year, its analysts project a 3.1% increase in sales next year, due in part to strength in the automotive and industrial segments, as well as for semiconductors for the smartphone market. And while operating earnings per share (EPS) are only expected to increase by a penny in 2016 to 85 cents, they are estimated to jump more than 28% in 2017 to $1.09.
Capital IQ rates ON stock a “Buy” with a 12-month target of $13.
Technically, ON stock hit a multiyear high of $13.50 in June 2015. It then descended in a series of steps down to a low just under $7 in February. Its intermediate resistance line, drawn from the 2015 high, was finally broken in late May, and a successful test of the double-bottom from June and July provided evidence that the February low was a bottom.
In early June, ON stock broke above its 50-day moving average and its intermediate resistance line. The remainder of July was spent building a base on the 50-day and 200-day moving averages.
Last week, heavy buying broke shares from a solid base at $10 to $10.45, closing out the week just over $11. This indicated that a new bull market is in progress.
Buy ON stock at $11.05 for a trading target of $13-plus for a potential return of at least 17%.