What happened
Shares of Skyworks Solutions (SWKS 1.58%) have climbed to record highs today, up by 5% as of 11:10 a.m. EST, after UBS modestly increased its price target. However, UBS remains on the sidelines overall, reiterating a neutral rating on the stock.
So what
Analyst Timothy Arcuri raised his price target on Skyworks shares from $181 to $190. The valuation adjustment comes just a few days after UBS expressed positive opinions about the tech company's pending $2.75 billion acquisition of Silicon Labs' (SLAB +0.17%) infrastructure and automotive business, which was announced last week.
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The deal is expected to be immediately accretive to earnings per share while also expanding Skyworks' total addressable market (TAM) from $14 billion to $20 billion, according to Arcuri's estimates. On top of that, the acquisition is highly complementary to Skyworks' current business and will create additional opportunities to cross-sell existing customers.
Now what
UBS estimates that the transaction will add around $400 million in annual revenue. Additionally, the deal should help Skyworks expand gross margins and improve profitability. Skyworks currently faces meaningful customer-concentration risk, as Apple is the company's largest customer by far. The Mac maker represented 56% of total revenue last fiscal year, and UBS estimates that Apple now represents approximately two-thirds of sales.
Acquiring the infrastructure and automotive segment from Silicon Labs will help diversify the customer mix, as that business has no customers that represent 10% of revenue.
