Stephens Analyst: Here's Why I'm Downgrading Skyworks Solutions

In a report published Monday, Stephens analyst Harsh Kumar downgraded shares of Skyworks Solutions Inc SWKS to Equal-Weight from Overweight while raising the price target to $100 from a previous $85.

According to Kumar, Skyworks fundamentals remain "solid" and the company is likely to beat its March quarter estimates and guide above consensus estimates for the June quarter. As such, shares are now trading at a slight premium to several large, highly diversified semiconductor firms and it may be wise for investors to "take some chips off the table" given a limited upside.

Kumar continued that Skyworks is growing its top-line faster than most of its well-diversified semiconductor firms, but its earnings growth (based on consensus calendar 2016 estimates) is relatively in-line with average earnings growth.

"Given the high valuation, one of the risks that we perceive is that SWKS has significant exposure to a large North American handset customer that could be coming up on tough comparisons due to the resounding success of the latest model at this customer and strong content gains for Skyworks on the prior generation," Kumar wrote. "While we are seeing content increase generation to generation, one of the risks would be that the next generation smartphone from this customer does not sell in the same volume as the recent phone, which we are unable to know at this point."

Bottom line, Kumar argued that the crux of his downgrade is based on the assumption that valuation is getting ahead of itself.