Why Is Skyworks (SWKS) Up 5% Since Last Earnings Report?
A month has gone by since the last earnings report for Skyworks Solutions (SWKS). Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Skyworks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Skyworks’ Q3 Earnings and Revenues Beat Estimates
Skyworks reported third-quarter fiscal 2020 non-GAAP earnings of $1.25 per share that beat the Zacks Consensus Estimate by 10.6%. However, the figure declined 7.4% year over year.
Revenues of $736.8 million surpassed the Zacks Consensus Estimate by 6.8%. However, the top line declined 3.9% year over year.
Per management, export restrictions on Huawei had a negative impact on revenues. Notably, after excluding Huawei-related revenues in both the fiscal third quarter and the year-ago quarter, revenues rose 2.5% year over year.
Broad markets accounted for 31% of revenues, flat sequentially.
Deal Wins: Key Growth Factor
During the reported quarter, Skyworks’ Sky5 product portfolio facilitated several 5G launches. The company’s offerings were selected by Samsung, Motorola, VIVO, Xiaomi and OPPO as well as other Tier-1 players for 5G mobile platforms.
Skyworks stated that 5G subscriptions, globally, are continuing to grow with estimates set to hit $3 billion over the next five years.
The company is benefiting from accelerating demand for 5G handset. Markedly, in China (23% of Skyworks' revenues), during the month of June, approximately 60% of all smartphones sold were 5G-enabled.
Moreover, Skyworks has shipped more than 150 million BAW-enabled modules. The company is witnessing strong momentum for this technology in both mobile and broad markets.
In the fiscal third quarter, the company’s Wi-Fi 6 solutions were adopted by AT&T to power its tri-band home gateways.
Moreover, Skyworks is supporting home security solutions at Amazon’s Ring Security Systems by delivering highly integrated connectivity. Additionally, it is ramping indoor and outdoor access points at Juniper, Linksys and Aruba.
The company also rolled out mesh router and voice assistant solutions to Google in the third-quarter fiscal 2020.
In the industrial space, Skyworks is powering IoT platforms at Gemalto and Bosch, while the company’s GPS, circulator and advanced filter solutions witnessed design wins at leading aerospace and defense companies.
Moreover, the Sky5 platform was adopted by leading automobile manufacturers like Ford and BMW in the fiscal third quarter.
Notably, the company is also diversifying in the infrastructure space based on deals with Ericsson, Nokia and Fujitsu.
Non-GAAP gross margin contracted 30 basis points (bps) on a year-over-year basis to 50.1%. However, this beat management’s expectation by 10 bps.
Research & development expenses, as percentage of revenues, expanded 280 bps on a year-over-year basis to 15.9%. Moreover, selling, general & administrative expenses, as percentage of revenues, expanded 140 bps from the year-ago quarter’s tally to 7.5%.
Non-GAAP operating margin contracted 160 bps on a year-over-year basis to 31.3% in the reported quarter.
Balance Sheet & Cash Flow
As of Jun 26, 2020, cash & cash equivalents were $1.162 billion, up from $1.108 billion as of Mar 27, 2020.
Cash generated by operating activities was $258.7 million compared with $280.4 million in the prior quarter.
The company reported free cash flow of $187 million and free cash flow margin of 32% compared with $220 million and 29% in the previous quarter, respectively.
Capital expenditure came in at $72 million in the reported quarter compared with $60 million in the prior quarter.
Skyworks repurchased 670K shares for a total of $59 million and paid out $73 million as dividends.
On Jul 23, the company declared a quarterly dividend of 50 cents per share, up 14% from the prior quarter’s dividend of 44 cents and payable on Sep 1, to shareholders as on Aug 11.
For fourth-quarter fiscal 2020, revenues are expected in the range of $830-$850 million.
The company expects broad markets to increase at a double-digit rate sequentially in fourth-quarter.
Skyworks expects expect gross margin in the range of 50-50.5% and operating expenses of roughly $142.5 million. Favorable product mix due to more 5G products is expected to aid gross margin growth.
Non-GAAP earnings are anticipated to be $1.51 per share at the mid-point of the revenue range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.7% due to these changes.
Currently, Skyworks has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Skyworks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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