Billionaire Ken Griffin Bought Fairchild Semiconductor

Peers for Fairchild include Analog Devices, Inc. (NASDAQ:ADI), NXP Semiconductors NV (NASDAQ:NXPI), Texas Instruments Incorporated (NASDAQ:TXN), and David Einhorn favorite Marvell Technology Group Ltd. (NASDAQ:MRVL). NXP is unprofitable on a trailing basis, while Marvell trades at 15 times trailing earnings and the other two companies have P/Es of 20. As a general rule, recent performance hasn’t been good at these companies either: net income was down over 60% last quarter versus a year earlier at Marvell and NXP and so even though the forward P/Es are quite low we think that we would avoid them for now.

ADI’s fiscal year ended at the very beginning of November 2012, and in the fourth quarter of that fiscal year its revenue and earnings were about flat compared to the fourth quarter of its last fiscal year. Wall Street analysts expect income to rise slightly in 2013, and so the forward P/E is 16. It might be worth considering, but we wouldn’t place a high priority on it as a value case would be dependent on seeing higher earnings. Texas Instruments reported substantial earnings growth in the third quarter of the year compared to Q3 2011, but revenue was down slightly (suggesting that growth on the bottom line might not be sustainable). It too is another outside possibility, but the multiples are just too high for us to get excited about the stock.

We’re not sure why Citadel likes Fairchild so much. It, and its industry really, have deteriorating financials and yet the company has a higher trailing P/E than many of its peers- quite high even in terms of forward earnings estimates. With these estimates themselves dependent on remarkable improvement in 2013, we wouldn’t buy the stock at these levels.

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