Shares of Fairchild Semiconductor International Inc. (FCS - Snapshot Report) touched a 52-week high of $19.23 in the last trading session, before sliding a notch lower to close at $19.13. The company’s share price has been on an upward trajectory since management announced a significant shift in the company’s manufacturing strategy and an aggressive share buyback program.

Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has plenty of upside left, given its fundamental strength, strong free cash flow generation ability and shareholder-friendly capital allocation strategies.

Growth Drivers

The chipmaker has undergone a transformative shift in its manufacturing strategy over the past year or so, as it winded down outdated facilities and continues to streamline its manufacturing footprint. The consolidation of its capabilities is expected to improve supply chain flexibility as the company shifts production to external manufacturers. Also, in addition to being financially favorable, the strategy will also increase the company’s flexibility and responsiveness to clients’ demands, going forward.

Dramatic reduction in capital expenditure and operating costs is expected to translate into a significant boost to the company’s free cash flow. Fairchild, in the most aggressive share buyback program in the semiconductor industry, is committed to deploy 100% of its free cash flow for share repurchases. This strategy will create value and enhance shareholder wealth, and will likely be reflected in the company’s share price soon.

The company saw solid growth momentum in the automotive, battery charging, communication infrastructure and data center end markets in 2014, and expects to continue increasing its exposure to these sectors in 2015. Even its mobile segment, which has suffered lately as the company shifted its focus from interface to power management, is expected to return to the growth path this year. These growing end markets will prove to be strong catalysts for the company, going forward.

Fairchild is also taking steps to enter into the burgeoning wearables market, which could prove to be a lucrative step for the company.

Also, the semiconductor space is in a consolidation phase, with the latest deal being the acquisition of Freescale Semiconductor, Ltd. (FSL - Snapshot Report) by NXP Semiconductors NV (NXPI - Snapshot Report). With its impressive free cash flow and strong net cash attributes, Fairchild could be a compelling takeover target.

We believe that Fairchild’s initiatives to improve operational efficiency and rationalize manufacturing facilities will result in margin expansion and improve the company’s supply flexibility and profitability. Also, a favorable capital allocation strategy and repurchase programs will boost the company’s share price, going forward.

http://www.zacks.com/stock/news/168631/fairchild-hits-52week-high-on-robust-share-buyback-plans