Citi: Atmel's Valuation Means Silicon Labs Is Worth $50

Citi recently issued a report on Silicon Laboratories (NASDAQ: SLAB) after the company beat Wall Street EPS expectations for the December quarter and offered guidance for the March quarter that was in line with expectations. Currently, analysts at Citi rate Silicon Labs as a Buy with a lowered price target from $58 to $50.

Atif Malik and Amanda Scarnati, analysts at Citi, wrote, "We continue to view SLAB as a small cap IoT consolidator in semis in 2016 and we also believe that they are an attractive acquisition target. SLAB has a strong product portfolio and grew top line at a 5 percent CAGR between 2012 and 2015 vs. microcontroller peer ATML declining at a 6 percent CAGR over the same period. We contend that SLAB would garner a 15 percent+ premium to ATML's 2.8x TTM sales takeout price offered by MCHP."

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Highlights

Analysts at Citi highlighted two key points that could drive Silicon Lab's stock price higher:

• 1. Valuation

Citi noted that Atmel Corporation (NASDAQ: ATML), a competitor of Silicon Labs, is currently valued at over $8 per share. The analysts shared their belief that if a competitor has this high a valuation, then Silicon Labs has the potential to be worth $50 per share.

• 2. Organic Revenue Growth

Analysts at Citi wrote that Silicon Labs grew their Internet of Things platform by $50 million with infrastructure growth growing 13 percent year over year. As a majority of this growth was organic, Citi believes that this growth has the potential to accelerate in 2016, as the market continues to adopt new technology around home automation and industrial applications of the IoT platform.

At the time of this writing, Silicon Labs was trading at $41.15, down 2.35 percent. Atmel Corporation was trading flat on the day at $8.05.

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