BofA: Skyworks Has M&A Potential, Big Dividend, Apple Connection And We Like It

In a report published Friday, BofA Merrill Lynch analyst Vivek Arya maintained a Buy rating on

, while raising the price objective from $115 to $125. Skyworks is a leading supplier of power amplifiers, front end modules and other RF components for mobile devices and communications infrastructure. The company's RF products are benefitting from a 2x-4x content increase in front-end RF from the migration to data intensive 3G/4G smartphones from voice intensive 2G phones. The company's growth prospects are driven by its dominant market share, consistent execution history, and diversified customer base in the secular growth power amplifier (PA) radio frequency (RF) chip market. In the report BofA Merrill Lynch noted that the doubling of dividend by Skyworks has boosted confidence in the 2H trends. The company's strong free cash flows and clean balance sheet create potential for accretive and diversifying M&A. "We think the Street's expectation of just 14% HoH sales growth in 2HCY15 could prove conservative, given median 17% and average 23% HoH growth over last five years," analyst Vivek Arya wrote. Referring to concerns over increased competition from the consolidation of

and

, Arya said, "There is some concern BRCM might consider bundling its WiFi processors with AVGO's RF chips as the two companies consummate their announced merger, affecting WiFi RF leader SWKS. However, we think this concern is unfounded since SWKS has the proprietary SiGe technology, MCM packaging and direct OEM relationships, which implies high barriers for new entrants."