UPDATE: Evercore Group Initiates Coverage On ON Semiconductor On Multiple Factors

In a report published Wednesday, Evercore Group analyst Michael Lucarelli initiated coverage on ON Semiconductor (NASDAQ: ONNN) with an Underweight rating and $8.00 price target.

In the report, Evercore Group noted, “We initiate with an Underweight rating and $8 PT. We think shares underperform as (1) we are at least in the mid-innings of the current semi cycle, (2) Street 2015 EPS of 97c is a high bar and reflects SANYO upside, (3) growth expectations in higher margin markets are aggressive, and (4) acquisitions (Truesense, April '14) have historically coincided with a peaking stock price, +27% since Nov 2013 (vs. NASDAQ: +9%, SOX: +18%).

"From a strategy standpoint, we do not believe ON's acquisitive nature has been beneficial. It has failed to stimulate revenue growth, been margin destructive, diluted earnings, reduced focus on the core business, and taken away from S/H returns.As such, we think a better use of its robust FCF (15e: 12% of sales) would be to reduce debt faster to set the table for more returns to S/H, preferably with a dividend. This would also help smooth price fluctuations through the cycle, provide downside support, and lift the multiple. However, we don't expect a change in strategy soon and initiate with an Underweight.”

ON Semiconductor closed on Tuesday at $8.71.