Drexel Hamilton Starts Skyworks At Buy, Sees 40% Upside

• The share price of Skyworks Solutions, Inc. SWKS has declined 24.37 percent in the last three months, hitting a low of $77.47 on October 13.
• Drexel Hamilton’s Cody Acree has initiated coverage of the company with a Buy rating and price target of $110.
• Acree believes that the company is among the best positioned to participate in IoT growth, while maintaining a leadership position in the smartphones segment and growing its RF dollar content.

Analyst Cody Acree mentioned that Skyworks Solutions was “now one of the most consistent performers in the chip industry, with attractive growth, limited competition, increasing gross margins, and growing cash flows.”

Although the stock has suffered due to investor concerns regarding the China handset market, Acree believes that this is temporary and that the company’s robust earnings leverage and attractive multiple would attract investors back.

According to the Drexel Hamilton report, “the bulk of China excess phone inventory has been cleared and fairly normal seasonal demand is anticipated.”

Skyworks Solutions have been able to improve its gross margins over the past few years, from 30 percent to 50 percent, with op margins increasing from 5 percent to 38 percent. Acree believes that the potential acquisition of PMC-Sierra, Inc. PMCS could lead to meaningful margin improvement.

“SWKS expects the PMCS acquisition to be $0.75 accretive within 2-3 quarters after close, with revenue synergies likely to drive accretion higher,” the report stated.