Citigroup: Sell Skyworks Solutions

Skyworks Solutions Inc SWKS shares have declined 11 percent year-to-date, following the weak March quarter results.

Citi’s Atif Malik downgraded the rating on the company from Neutral to Sell, while lowering the price target from $69.50 to $65.00.

Malik believes that the stock “deserves to trade at a discount or 11x P/E vs. last three year average of 12.5x due to a) lack of premium filters to address faster growing carrier aggregation market, and b) increasing dual sourcing led competition in the low band market where SWKS participates.”

Weak March Quarter

The company reported weak results for the March quarter, driven I part by the $2–$3 lower content in the higher selling iPhone SE, than the iPhone 6s.

Revenue declined 16 percent quarter on quarter, and the analyst expects revenue to decline another 3 percent in the June quarter, driven by weaker unit sales at Apple Inc. AAPL and lower dollar content.

Looking Ahead

“We expect that SWKS will continue to underperform relative to Qorvo Inc QRVO as iPhone 6s unit expectations continue to fall,” Malik stated.

In addition, Malik expects increased competition and dual sourcing to result in marker share losses for Skyworks Solutions, which in turn would drive down the stock through the end of 2016.

The FY17 EPS estimate has been lowered by $0.03, while the EPS estimate for FY18 has been lowered by $0.15, on lower revenue expectations.