BMO Prefers Qorvo Over Skyworks Solutions

BMO prefers Qorvo Inc (NASDAQ: QRVO) over Skyworks Solutions Inc (NASDAQ: SWKS) on valuation metrics, while initiating coverage of Skyworks at Market Perform with a $69 price target.

"Along with Broadcom Ltd., and Qorvo, Skyworks is one of the 'three horsemen' in the RF semi space," analyst Ambrish Srivastava wrote in a note.

Skyworks' Appeal

Skyworks has a reputation of more consistent execution in an industry where the carriers and handset makers "look to provide smartphones with high data throughput bounded by limited wireless spectrum."

"The operating margin structure is very akin to an analog model. However, given the customer concentration issue, we do not see shares of SWKS breaking into the realm of the valuation occupied by the diversified analog companies in our coverage," Srivastava said.

Qorvo's Cutting Edge

As a result, the analyst find Skyworks fairly valued and prefers Qorvo over Skyworks, as "we find QRVO's valuation more attractive, its positioning better and see upside to the company's operating margin."

"Specifically on a P/E, EV/Sales and EV/FCF basis, we find QRVO more attractive," Srivastava highlighted.

Woburn, Massachusetts-based Skyworks is a leading provider of RF solutions for mobile and broad market applications.

Expectations And Justification

In the mobile market, the analyst said Skyworks "has increased its mix of mobile integrated systems over time (40 percent in FY13 to 52 percent in FY15) and lowered its mix of discrete power amplifiers."

"The company believes its broad markets total available market (TAM) opportunity will be $10 billion over a two to three year period and the analyst believes Skyworks can grow Broad Markets at greater than 20 percent over the long term.

"In FY15, the company had one greater than 10 percent customer at 44 percent of total sales, which we believe was Apple Inc. (NASDAQ: AAPL). For CY15, when including both Samsung and Apple, Skyworks has roughly 54 percent exposure to these two customers, respectively," the analyst stated.

Skyworks has a $4.5 billion run rate target, $8.00 EPS target and 2017 EPS of $6.42.

At the time of writing, shares of Skyworks were up 0.39 percent at $66.43, while Qorvo was up 0.18 percent at $50.62.