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Skyworks (SWKS) Up 22.8% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Skyworks Solutions, Inc.SWKS . Shares have added nearly 23% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Skyworks reported first-quarter fiscal 2017 non-GAAP earnings of $1.61 per share, which increased 0.6% from the year-ago quarter and 9.5% on a sequential basis. Further, the figure beat management's guidance by $0.03.

Earnings (including stock-based compensation) were almost $1.50 per share, beating the Zacks Consensus Estimate by $0.02.

Revenues of $914.3 million were down 1.3% year over year but increased 9.4% sequentially and were ahead of management guidance (up 7-9% sequentially) and Zacks Consensus Estimate of $902 million.

Notably, Skyworks largest customer (Apple) contributed 40% of quarterly revenues, while Huawei was the second largest customer in the quarter.

Internet of Things (IoT), 5G, Automotive Key Drivers

Skyworks continues to capitalize on global mobile connectivity and demand for high-performance solutions across a diverse set of verticals and the Internet of Things (IoT) market. The demand for system-level solutions and higher levels of integration are increasing, as customers implement the next level of functionality for higher bandwidth. These in turn are playing directly into Skyworks' strengths and generating huge demand for its products.

During the quarter, the company's SkyOne platform won contracts from multiple Tier 1 original equipment manufacturers (OEM). Its SkyBlue technology was integrated into Huawei's Mate9 platform. Skyworks launched multiple devices across Samsung's entire portfolio and gained momentum in China, with key wins at market leaders Oppo, Vivo, Meizu and Xiaomi.

Skyworks penetration improved in the IoT market through design wins from Netgear, Amazon, Google and Microsoft. Further, its products were selected by Linksys, Ubiquiti Networks and other leading OEMs. The company also expended its presence in the automotive sector through a strategic design win at a leading U.S. electric car OEM.

Skyworks believes that connected car market and 5G are significant growth drivers for the company going ahead. Market projection suggests 5G data rates to be 10X the speed of card 4G and LTE solutions. Based on its product portfolio the company is well positioned to address the connectivity challenges both these markets present. This will eventually drive top-line growth in the long run.

Margin Contracts

Non-GAAP gross margin contracted 20 basis points (bps) on a year-over-year basis but remained almost flat sequentially to 50.7%.

Research & development (R&D) expense increased 20 bps, while selling, general & administrative (SG&A) expense remained almost flat from the year-ago quarter. Sequentially R&D expense increased 20 bps but SG&A decreased 80 bps.

The increase in R&D reflects Skyworks continuing investments in expanding its business, particularly in the IoT market.

As a result, non-GAAP operating margin contracted 50 bps on a year-over-year basis but expanded 60 bps sequentially to 36.4% in the reported quarter.

Balance Sheet & Cash Flow

As of Dec 30, 2016, cash & cash equivalents were $1.08 billion, up $266.7 million sequentially. Cash flow from operating activities was $495.9 million as compared with $455 million reported in the previous quarter.

In the first quarter, Skyworks repurchased 1.4 million shares at an average price of roughly $76 a share.

Guidance

For second-quarter fiscal 2017, revenues are expected to be up 8% year over year (as forecasted earlier in the first-quarter earnings call) to $840 million.

Although revenues will decline seasonally (almost 8%) due to seasonal weakness, the figure is expected to better-than the Zacks Consensus Estimate that was pegged at $809.4 million.

Gross margin is expected to be in the low 50% range, while operating expenses to be $115 million. Management stated that it is well poised for margin expansion in second-half 2017 driven by sequential revenue growth.

Non-GAAP earnings are anticipated to be $1.40 per share, much better-than the Zacks Consensus Estimate that was pegged at $1.28.

Skyworks also announced a new share buyback program worth $500 million.

Note : The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimate. There has been one revision higher for the current quarter.

Skyworks Solutions, Inc. Price and Consensus

Skyworks Solutions, Inc. Price and Consensus | Skyworks Solutions, Inc. Quote

VGM Scores

At this time, Skyworks' stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

Estimates have been trending upward for the stock. The magnitude of this revision also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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