Power Integrations cut to hold after Apple speculation fuels run-up

The shares of Power Integrations (POWI) are falling after Deutsche Bank downgraded the stock to Hold from Buy. According to the firm, potential increases in the company's profits stemming from a rumored design win from Apple (AAPL) are already "largely" reflected in the company's stock. Moreover, Deutsche analyst Ross Seymore stated that he could not "support or refute" the rumors. Power Integrations develops power converter components. VALUATION: Noting that Power Integration's stock has risen 30% over the last month, Seymore attributed the rally to "market speculation" about a design win in Apple's upcoming iPhone. If Power Integration's socket is incorporated in the iPhone, its earnings per share could rise by 10%-25%, depending on whether its socket is included in 50% or 100% of the new iPhones, the analyst estimated. However, its valuation multiple will probably drop due to "customer concentration concerns," according to Seymore, who indicated that the multiples of previous smartphone component makers fell after they began obtaining a large percentage of their revenue from a small number of customers. If Power's socket is incorporated into every iPhone, and its valuation multiple remains constant, the stock could rise 6%. In all other scenarios, however, the stock will probably drop, the analyst stated. OUTLOOK: Power Integration's second quarter results will probably meet analysts' consensus estimates, but the market's expectations for the second half of the year are probably well above Deutsche's expectations, due to a potential deal with Apple, Seymore stated. TARGET: Seymore kept a $75 price target on the shares. PRICE ACTION: In morning trading, Power Integration fell 4.3% to $78.25 per share.