Citi Downgrades Skyworks Amid 'Lower Carrier Aggregation Opportunity'

Citi’s Atif Malik downgraded the rating for Skyworks Solutions Inc SWKS from Buy to Neutral, with a price target of $78. The analyst commented that the stock’s risk-reward seemed more balanced now, following the rally after the GS7 and iPhone SE launch. He added that the company was now facing a “lower addressable carrier aggregation market.”

Skyworks’ shares have gained 41 percent since their February lows, backed by next-gen phone launches. Following the appreciation, expectations of a +20 percent H/H recovery in 2H16 smartphone demand seems to be “largely priced-in,” analyst Atif Malik said.

Risk-Reward More Balanced

Malik expressed concern regarding RF gross margins in general, against the backdrop of a decelerating smartphone unit market. He added that Skyworks now faces a “lower filter driven carrier aggregation (CA) addressable opportunity.”

“We remain believers in SWKS execution and $ content share gains in China/Apple led by low-mid band and diversity receive modules. We could become constructive on the stock if SWKS can accelerate its diversification strategy (mobile still 80% of the overall sales) which should help expand the stock multiple,” the analyst wrote.

While Skyworks had indicated plans to explore $300-$500M annual revenue rate acquisitions, Malik believes that the company requires “a larger or more transformative” acquisition.