QLogic Downgraded To Hold As Acquisition Deal Seems To Be Priced In

As QLogic Corporation QLGC shares are trading in Argus' former 12-month price target of $16, Argus' Jim Kelleher has downgraded the issue from a Buy rating to a Hold.

Kelleher lowered his near-term rating on QLogic Corp to Hold while retaining his long-term Buy rating. The downgrade is in response to the announcement of Cavium Inc. CAVM intention to acquire QLogic for $1.35 billion. The deal appears perfect, as QLogic's results have been all over the place in recent years. "In short, QLogic lacked the scale and breadth to deliver stable results and predictable growth," Argus noted.

Related Link: Canaccord Questions Logic Of Cavium's Acquisition, Downgrades To Hold

QLogic shares have priced in the acquisition. In addition, the analyst sees a slight risk in the deal particularly if Cavium share price continues to fall. Although the acquisition will be a good asset for Cavium, which is "seeking to strengthen its server offerings," the analyst noted.

As shares of the company trade within the range predicted by Argus in 2015, the Hold rating is appropriate in Kelleher's view. In addition, the $200 million cost cutting plan launched last year in July has started to deliver results, an additional benefit for the company.