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Summary

  • Skyworks will benefit from the highly anticipated next month's Apple's iPhone 6 launch.
  • Skyworks is an excellent combination of a good value and strong growth tech stock.
  • Skyworks has been able to record double-digit earnings and revenue growth six quarters in a row.

Skyworks Solutions (NASDAQ:SWKS) is an excellent combination of good value and strong growth tech stock. As a supplier of complex chips for Apple (NASDAQ:AAPL) mobile devices, Skyworks will benefit from the highly anticipated next month's Apple's iPhone 6 launch. SWKS stock has surged strongly since mid-2013, gaining an impressive 175% from the start of that year. Nevertheless, in my opinion, SWKS stock still has room to move up. Moreover, Skyworks has been able to record double-digit earnings and revenue growth six quarters in a row and an earnings per share surprise in each one of the last four quarters.

The Company

Skyworks Solutions is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America.

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Source: Company Overview

Valuation Metrics

The table below presents the valuation metrics of SWKS, the data were taken from Yahoo Finance and finviz.com.

Skyworks' valuation metrics are very good; the forward P/E is low at 14.25, the PEG ratio is very low at 0.98, and the average annual earnings growth estimates for the next five years is very high at 18.13%.

Latest Quarter Results

On July 17, Skyworks reported its third-quarter fiscal 2014 financial results, which beat EPS expectations by $0.03 (3.70%) and beat on revenue.

Revenue for the quarter was $587.0 million, up 35 percent year-over-year and 22 percent sequentially, and better than the Company's updated guidance for $570.0 million provided on June 03, 2014. On a non-GAAP basis, operating income for the third fiscal quarter of 2014 was $179.1 million, up 60 percent from $111.9 million in the year ago period. Non-GAAP diluted earnings per share for the third fiscal quarter was $0.83 versus revised guidance of $0.80 and compared to $0.54 for the prior year third fiscal quarter and $0.62 last quarter. On a GAAP basis, operating income for the third fiscal quarter of 2014 was $148.5 million and diluted earnings per share was $0.58.

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Source: Company Overview

In the report, David J. Aldrich, chairman and chief executive officer of Skyworks said:

Skyworks is entering a new and exciting growth phase driven by global wireless proliferation and the Internet of Things. Quite simply, we are capitalizing on the macro trend to connect virtually everyone and everything, all the time. Our high performance analog solutions and system-level integration capabilities coupled with our operational agility and scalability are enabling us to connect the previously unconnected. Accordingly, Skyworks is setting the pace for analog semiconductor industry growth in terms of both revenue and value creation.

Also in the report, Donald W. Palette, executive vice president and chief financial officer of Skyworks, gave an outlook for the fourth fiscal quarter:

Skyworks is executing to our strategy to grow substantially faster than the broader analog semiconductor industry while delivering best in class financial returns. Given our broad customer demand and expanding product pipeline, we are forecasting sustainable, above-market growth for the foreseeable future. For the fourth fiscal quarter of 2014, we anticipate revenue to be up 43 percent year-over-year to $680 million with non-GAAP diluted earnings per share up 56 percent year-over-year to $1.00.

Dividend and Share Repurchase

Skyworks started paying a dividend on May 09, 2014. The forward annual dividend yield is at 0.79% and the payout ratio is only 5.6%.

Since the company has no debt at all, and it generates lots of cash, and the payout ratio is extremely low, there is a good chance that the company will raise its dividend payment.

During the last quarter the company repurchased one million shares of its common stock.

Competitors

A comparison of key fundamental data between Skyworks and its main competitors is shown in the table below.

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Source: Yahoo Finance, finviz.com

SWKS has the highest gross and operating margins among the stocks in the group, and it is the only one that pays some dividend. However, its PEG ratio is higher than that of RFMD.

Skyworks' Growth Rates parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the table below.

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Source: Portfolio123

Ranking

According to Portfolio123's "All-Stars: O'Neil" powerful ranking system, SWKS stock is ranked second among all Russell 1000 stocks, only AmTrust Financial Services (NASDAQ:AFSI) is ranked higher. The ranking system is based on investing principles of the well-known investor William O'Neil. The "All-Stars: O'Neil" ranking system is quite complex, and it is taking into account many factors like; EPS Growth, Sales Growth, Industry Growth, Market conditions and Margins, as shown in the Portfolio123's chart below.

Back-testing over fifteen years has proved that this ranking system is very useful.

Technical Analysis

The charts below give some technical analysis information.

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Chart: finviz.com

The SWKS stock price is 6.27% above its 20-day simple moving average, 12.27% above its 50-day simple moving average and 48.48% above its 200-day simple moving average. That indicates a short-term, mid-term and a long-term strong uptrend.

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Chart: TradeStation Group, Inc.

The weekly MACD histogram, a particularly valuable indicator by technicians, is at 0.44 and ascending, which is a bullish signal (a rising MACD histogram and crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 78.23 which indicate overbought conditions.

Analyst Opinion

Many analysts are covering the stock, and most of them recommend it. Among the twenty analysts, eight rate it as a Strong Buy, ten rate it as a Buy, and two analysts rate it as a Hold.

TipRanks is a website that ranks experts (analysts and bloggers) according to their performance. According to TipRanks, among the analysts covering SWKS stock there are ten analysts who have the four or five star rating, all of them recommend the stock.

On August 12, Canaccord Genuity analyst Michael Walkley reiterated a Buy rating and bumped his price target on Skyworks Solutions to $62.00 (from $55.00) after hosting a two days of investor meetings with Don Palette, Skyworks' VP and Chief Financial Officer. According to Mr. Walkley, Skyworks is well positioned to generate 15% year-over-year sales growth for the next two years.

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Source: TipRanks

Major Developments

Skyworks anticipates, for the fourth fiscal quarter of 2014, revenue to be up 43 percent year-over-year to $680 million with non-GAAP diluted earnings per share up 56 percent year-over-year to $1.00. This amazing growth is partly a result of its relationship with Apple. Skyworks has been a longtime supplier of the main antenna switches and power amplifiers for the iPhone. Apple is preparing to produce about 70 million-80 million of its new iPhones 6, and that benefits suppliers like Skyworks.

During the last years, Skyworks has been a fast growing company. In fact, it has recorded double-digit earnings and revenue growth six quarters in a row, and it has achieved an annual average EPS growth of 26% in the last five fiscal years.

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Source: Company Overview

Skyworks has been able to show an earnings per share surprise in each one of the last four quarters, as shown in the table below.

Data: Yahoo Finance - Analyst Estimates

In my opinion, the fact that the company succeeds to beat analyst expectations quarter after quarter demonstrates the strength of its business, and there is a good chance that Skyworks will continue to surprise by reporting better than estimate results also in the future.

SWKS stock started its strong rally in July 2013, and continued to perform very well in 2014. Since the start of the year, SWKS stock has gained an impressive 95.4%, while the S&P 500 index has risen 7.5% and the Nasdaq Composite Index has increased 8.4%. Moreover, since the beginning of 2013, SWKS stock has recorded an astounding gain of 175%, while the S&P 500 index has increased 39.3% and the Nasdaq Composite Index has risen 49.9%. Nevertheless, considering its compelling valuation metrics and very strong earnings growth prospects, the stock, in my opinion, still has room to move up.

Conclusion

Skyworks supplies complex chips for Apple mobile devices. Thus, it will benefit from next month's Apple's iPhone 6 launch. Skyworks has compelling valuation metrics and very strong earnings growth prospects. Moreover, SWKS stock is ranked second among all Russell 1000 stocks, According to Portfolio123's "All-Stars: O'Neil" powerful ranking system. In addition, Skyworks has been able to record double-digit earnings and revenue growth six quarters in a row, and an earnings per share surprise in each one of the last four quarters. All these factors lead me to the conclusion that SWKS stock is a smart investment right now.

Source: Skyworks Solutions: An Investment Opportunity In A Fast-Growing Tech Stock