Skyworks (NASDAQ: SWKS), which produces semiconductors, soared by more than 15% in late trading yesterday after outstanding fiscal first quarter results for the period ending January 1, 2021.
Here are the key points in the Skyworks report:
- Revenue of $1.51 billion was up 58% yoy. It was ahead of the company’s guidance range of $1.04 billion to $1.07 billion. Analysts were expecting $1.06 billion.
- Non-GAAP earnings were $3.36 a share, ahead of the company’s forecast of $2.06 and the Wall Street consensus of $2.08.
- GAAP earnings were $3.05 a share, more than double the $1.50 reported in the same period a year ago.
- In the March quarter, Skyworks expects revenue to come in at $1.125 billion to $1.175 billion, and non-GAAP earnings of $2.34 a share. Wall Street was expecting $915 million in revenue and $1.70 a share in non-GAAP profits.
Skyworks was an intriguing play ahead of earnings because Apple (NASDAQ: AAPL) is responsible for more than 50% of its revenue. With the iPhone maker reporting blowout earnings on Wednesday, it was tempting to pile in to Skyworks.
But hindsight is 20/20.
Skyworks was actually a risky play ahead of earnings because strong numbers were likely priced into the shares.
In Q4 2020, for example, revenue of $956.8 million was well ahead of consensus estimates of $842.4 million. Adjusted EPS of $1.85 blew away estimates of $1.52. The company upped its Q1 guidance to $1.055 billion in sales and $2.06 in adjusted EPS; both numbers were much higher than analyst estimates. Investors shrugged off the beat, however, with shares falling in pre-market trading.
Looking back at Skyworks’ history, the company routinely beats on the top and bottom line. Skyworks’ history of under promising and overdelivering likely led to high whisper numbers ahead of this latest release.
So, where does that leave us now?
Skyworks’ investment prospects are inextricably linked to Apple’s future outlook. Though Apple dipped on earnings yesterday, the 5G adoption cycle seems to be in the early stages, which should create elevated demand for Skyworks’ chips for a couple of years. Apple is trading at more than 34x forward earnings, which shows that there is a lot of growth priced into AAPL shares. And Apple’s growth is Skyworks’ growth.
Skyworks, on the other hand, is trading at 23.5x forward earnings and 20.7x 2022 earnings. Those numbers are really reasonable for a growing company, and if history is any indication, the actuals will be even better than the current estimates.
You could also see a number of upgrades today. Skyworks currently has no sell ratings, 8 hold ratings, and 17 buy ratings. But the consensus price target is only $161.14. The analysts already hold a favorable view of the company, and will likely have no problem increasing their price targets considerably in light of the earnings beat.
Don’t Overlook the Share Repurchase and Dividend
In yesterday’s release, Skyworks announced that its board has authorized a stock repurchase program of up to $2 billion until January 26, 2023. That’s more than 5% of the company’s market cap, so it’s not an insignificant number.
Moreover, Skyworks does something that not a lot of growing tech companies do: it pays a dividend. It’s just a shade over 1%, but hey, that’s not too shabby in our current low-yield environment. And Skyworks has raised its quarterly dividend in the past – it has more than quadrupled since 2014. With the company’s excellent earnings outlook, future dividend hikes appear to be in the cards for Skyworks.
How Should You Play Skyworks?
Skyworks looks like it will open at new all-time highs tomorrow. SWKS had already tried to break out three times in January, but was turned back around $165-170 all three times.
So… fourth time is a charm?
Skyworks has the potential to soar past $200 a share, but there could be some profit-taking induced volatility before that happens.
It’s probably best to wait for a pullback to the $170 range or a bullish flag pattern to materialize before getting in.
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