Brean Capital Cuts Price Target on Cavium (CAVM) Following Announced QLogic (QLGC) Acquisition

Brean Capital maintained a Buy rating on Cavium Networks (NASDAQ: CAVM), and cut the price target to $60.00 (from $67.00), following the company's announced acquisition of QLogic (NASDAQ: QLGC). Strategically, Brean sees little to no overlap at the product level of both CAVM and QLGC, and believes that all of QLGC's products will contribute to top-line growth in 2016.

Analyst Mike Burton commented, "Yesterday after the market close, Cavium Inc. announced that it will acquire QLogic (QLGC, $13.54, NR) for approximately $15.50 per share, which translates to an equity valuation of $1.36B (about 14x QLGC’s FY18 [ends March 2018] EPS estimate). The deal is expected to close in Q3 CY 2017 and at the midpoint of the guidance provided by management, CAVM expects the deal to be about $0.65 accretive to CAVM’s CY 2017 non-GAAP EPS. On the strategic side, we believe this deal creates one of the few public Data Center semiconductor “pure plays” as the combined company will be targeting and providing high performance connectivity solution for servers and storage systems. We believe there is little product overlap, but there are significant potential cross selling opportunities as both companies share a similar customer base. We are expecting many questions to be raised fairly about the implications of a high-growth company buying a low-growth value one, and we too are throttling back our estimates in the 2H16 and going forward as a result. We are reiterating our Buy rating on the shares of CAVM, but lowering our target price from $67 to $60, based on our lowered estimates, and a lower multiple assigned given the lower growth profile of QLGC."

For an analyst ratings summary and ratings history on Cavium Networks click here. For more ratings news on Cavium Networks click here.

Shares of Cavium Networks closed at $48.00 yesterday.

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