Analyst: Skyworks Should Merge With Maxim

While Skyworks Solutions Inc SWKS has experienced success in the mobile market, the data center and automotive spaces could provide diversification for the company and lead to long-term upsides.

By expanding its focus – perhaps through a merger with Maxim Integrated Products Inc. MXIM, which would allow diversification into those two related sub-sectors – analysts at Pacific Crest feel Skyworks could see a fair value at $130 in 2017.

In Pursuit Of M&A

Pacific Crest gave three reasons Skyworks needs to seriously consider pursuing M&A.

• 1. M&A would provide "opportunity to diversify from its 80 percent exposure to mobile"
• 2. "Slowing RF TAM CAGR trending toward 11 percent over the next several years vs. 18 percent historically, given limited opportunities for further increases in band counts."
• 3. "P/E multiple compression, reflecting maturing end-market handset growth."

Related Link: Citi Downgrades Skyworks Amid Lower Carrier Aggregation

Specifically, Pacific Crest sees Maxim as an ideal target, "given (1) higher opex/sales ratio vs. peers provides opportunities for higher cost synergies, (2) opportunity for multiple expansion given MXIM's higher normalized historical P/E ratio of 17.5x vs. 12.2 for SKWS, (3) attractive FCF yield of 6.5 percent."

The analysts further concluded, "Strategically, we believe the acquisition of MXIM would make the most sense and to be the most transformational."

Ratings And Current Price

Pacific Crest currently rates Skyworks at Overweight, with an attached price target of $100.

Likewise, the firm has an Overweight rating on Maxim; however, the price target on the latter is $37.

At time of writing, Maxim was up 1.4 percent on the day at $37.04, and Skyworks was flat on the day at $77.84.