Jefferies has raised its recommendation for chip designer ARM Holdings from 'hold' to 'buy' and lifted its target price from 805p to 1,300p, saying that the business looks well-positioned for the mid-to-long term.

In a research report on Friday, the broker was upbeat about ARM's rising royalty rates, record licensing, upcoming tax benefits and operating expenditure (opex) control.

Jefferies expects ARM's earnings growth - at a three-year compound annual growth rate of 40% - "to continue largely unperturbed through 2013-2016".

The broker highlighted four key market areas that the company could develop to turn it into the "architecture of choice" and beyond its origins as just a low-power, single-threaded, 32-bit architecture.

"What really catches our eye are some of the developments around: (i) mobile computing SoCs [system on chips]; (ii) upcoming opportunities across 32-bit MCUs [microcontroller units] and so-called era of the Internet of Things (IoTs); (iii) the trend to replace legacy architectures with ARM in Networking; and (iv) the potential ARM has to become the architecture of choice in datacentres some three to five years out."

Jefferies said that ARM trades at 22-23 times 2015 earnings, below its mid-cycle price-to-earnings multiple of 30-35.

Shares were up 2.51% at 945.67p by 09:54.

BC

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