Barclays Is Overweight Avago, Sees 'Room For M&A'

In a report published Tuesday, Barclays analysts reinitiated coverage of

with an Overweight rating and a price target of $145, citing continued FBAR tailwinds and "more room" for mergers and acquisitions. In the report Barclays noted, "We outline further tailwinds for the RF group in our broader note out today (A Look at Upcoming iPhone Architectures; Trends for RF Group) while maintaining our preference for AVGO. We still have long-term pricing/margin concerns in RF but see AVGO only participating where its FBAR performance is valued." The analysts believe that Avago's content at Apple Inc

would be "flat to down" in 2015, after a double in the IP6. However, overall growth is likely to continue in view of share gains on the QUALCOMM, Inc.

side (Samsung) and "the move to PAMiDs (PA+filter+switch), which pulls in filters but also adds switch content, where AVGO has little share." Avago has closed its acquisition of Emulex Corporation

last week in an all-cash transaction valued at about $606M. The analysts expect the acquisition to me immediately accretion, boosting the July quarter EPS by about $0.03 boost and ramping to almost $0.30 in CY16, assuming ~$75M in cost savings. "The ELX deal continues AVGO's strategy of acquiring related businesses with strong franchises and managing them to more profitable cost structures," the report added.