Key Stats for Skyworks Solutions Inc
Even if "Artificial Intelligence" is now leading the 2017 hype-cycle, isn't there merit in the Internet of Things? And if so, shouldn't we reach for the Skyworks?
| Ticker | SWKS |
|---|---|
| Sector | Integrated Circuits |
| Latest price | $78.33 |
| Value | $14,555M |
| Daily vol | $173M |
| Date | 16 January 2017 |
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- Website: http://ift.tt/1l2sGSC
Description
Skyworks Solutions Inc. designs, develops, manufactures and markets semiconductor products, including intellectual property. The Company's analog semiconductors are used in the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. Its product portfolio consists of various solutions, including amplifiers, attenuators, detectors, diodes, filters, front-end modules, hybrid, mixers, switches, and modulators. Gawd, that sounds nerdy, doesn't it?
Perhaps, but the client list doesn't :) Arris, Bose, Cisco, Dell, Foxconn, Fujitsu, General Electric, Google, Honeywell, HTC, Huawei, Landis & Gyr, Lenovo, LG Electronics, Microsoft, Nest, Netgear, Northrop Grumman, OPPO, Rockwell Collins, Samsung, Sonos, VIVO, and ZTE.
Though, it's the theme of ubiquitous wireless & IoT that's probably the most exciting part of this story:
- huge growth is wireless connectivity
- lots of different frequencies and technologies
- a need for seamless handoffs, signal transmission, etc
- more efficient power management
- design challenges with a need for light, small, slimline offerings
- a move from discrete components to customized integrated circuits
- and finally huge demand unfulfilled in emerging markets for smart phone
With that backdrop SWKS highlights
We are at the forefront of advanced multi-chip module integration and offer unmatched technology breadth, providing deep expertise in CMOS, SOI, GaAs and filters and maintaining strategic partnerships with outside foundries.
Forgive me Nvidia shareholders, but is SWKS the ugly sister / cousin?
Recent financials
aside: it's a Sept year end.
Looking at the figures, there's nothing exciting about the top line. Though the change in product mix from regular phones to smart phones is helping to drive higher margins and better earnings.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $3.3bn | $3.3bn | $2.3bn | $1.8bn | $1.6bn |
| EPS | $5.18 | $4.10 | $2.38 | $1.45 | $1.05 |
Plus they arn't shy about acquiring competitors.
Competition
They don't paint a rosy picture about the overall market & the competition, but hey, this is the chip industry, so what's new!
The wireless communications semiconductor industry in general and the other analog markets in which we compete in particular are very competitive. We compete with international and United States semiconductor manufacturers of all sizes in terms of resources and market share, including, but not limited to, Analog Devices, Broadcom, Maxim Integrated Products, Murata Manufacturing, NXP Semiconductors, QUALCOMM, and Qorvo. We currently face significant competition in our markets and expect that intense price and product competition will continue. This competition has resulted in, and is expected to continue to result in, declining average selling prices for our products and increased challenges in maintaining or increasing revenue, gross margin and market share.
Now let's put the narrative to one side and look at margins and returns. Wow... best in class. Even QCOM would be jealous. ;)
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Skyworks Solutions Inc | $3,289M | 42% | 30% |
| Analog Devices, Inc. | $3,421M | 37% | 17% |
| Broadcom Ltd | $13,240M | 28% | -14% |
| Maxim Integrated Products Inc. | $2,194M | 33% | 21% |
| Microsemi Corporation | $1,655M | 21% | -2% |
| NXP Semiconductors NV | $8,664M | 20% | 11% |
| QUALCOMM, Inc. | $23,554M | 35% | 18% |
| Qorvo Inc | $2,792M | 27% | -1% |
Cash / Debt?
Skyworks Solutions Inc has $1,084M of net cash. That is the equivalent of 7% of the market value of Skyworks Solutions Inc. So management's keeping some powder dry in case a nice little competitor can be snapped up.
In fact they tried to buy PMC Sierra in 2015, only to lose to Microsemi. Though good to see they gave up instead of destroying shareholder value and overpaying.
Wall Street thinks?
The professionals on Wall Street have a $86.30 for Skyworks Solutions Inc and their recommendation to clients is Buy. That implies an upside of 10% to their target.
Valuation
When it comes to valuation it's on 13x and that's at the bottom on the sector. Seems a bit weird, given the high margins and good returns. Though the dividend yield is a little disappointing.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| SWKS.O | $14,555M | 13x | 15% | 1% | 10% |
| ADI.O | $22,395M | 21x | 7% | 2% | 7% |
| AVGO.O | $71,698M | 13x | n/a | 2% | 3% |
| MXIM.O | $11,748M | 21x | 10% | 3% | 8% |
| MSCC.O | $6,498M | 15x | 17% | 0% | n/a |
| NXPI.O | $34,040M | 17x | 27% | 0% | 4% |
| QCOM.O | $98,774M | 14x | 11% | 3% | 10% |
| QRVO.O | $7,481M | 13x | 15% | 0% | 8% |
Dividends
Skyworks Solutions Inc is forecast to pay a dividend of $1.13 per share, compared with a forecast EPS of $6.13.
And they've bought back circa $1bn of stock over the last 3 years.
Catalysts
In the last 3 months the stock price has moved by 2% that compares with a change in the earnings forecasts of 11%. Though frankly, that EPS upgrade is really just the rolling forward to the new fiscal year, with an expectation of sales up to $3.5bn in the coming year, and a tiny bit of margin improvement.
Supposedly the detractors worry they are too exposed to Apple and the iPhone. An Interesting aside is the stock's up 900% in the last 10 years versus Apple up 800% and the darling Nvidia up 400%. Though... the fears are justified. 40% of last years sales were to Foxconn (who work for Apple) and 10% were to Samsung! Ouch.
So, do I want to invest in a 50% smartphone play 50% other (IoT etc)? At 13x it's bang in line with Apple or Intel. And it's cheaper than a lot of the banks stocks.
Maybe this is one of those delightful "boring stock", that will perform a dream over the long-term... though in terms of an economic moat, I fail to see a particularly strong one.
Any long-term owners here on reddit?
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted January 16, 2017 at 03:59PM by shane_stockflare http://ift.tt/2jCVSoJ
