Morgan Stanley Drops Bearish Skyworks Stance After Sell-Off In Apple Supplier's Shares

Shares of Apple Inc. AAPL supplier Skyworks Solutions Inc SWKS have tumbled about 20 percent since the iPhone maker reported quarterly results Nov. 1, but the company could find a reprieve, according to Morgan Stanley.  

The Analyst

Analyst Craig Hettenbach upgraded Skyworks from Underweight to Equal-weight and maintained a $76 price target for shares.

The Thesis

Negative revisions for Skyworks have driven the consensus closer to Morgan Stanley's estimates, and have also led to meaningful underperformance in shares, Hettenbach said in the Wednesday upgrade note. (See his track record here.) 

The negative estimate revisions came due to weakness in the Chinese smartphone market and recent order cuts in Apple's iPhone supply chain, the analyst said. 

The sell-off has brought the shares close to trough multiples on an absolute and relative basis to the group, Hettenbach said.

Morgan Stanley was bearish on Skyworks for over two years due to concerns over gross margins; risks surrounding smartphone unit growth; and a lack of premium filter technology, the analyst said — a clear disadvantage relative to peers Broadcom Inc AVGO and Qorvo Inc QRVO.

Morgan Stanley expects further estimate revisions into early 2019 due to disappointing iPhone sales. Yet the firm said it is using this period of "very negative sentiment" for smartphones and underperformance in shares to move to the sidelines.

"Our EPS estimate for FY19 is 2-percent below the Street, representing the smallest delta in the past two years," Hettenbach said. 

The Price Action

Skyworks shares were down 0.21 percent at $70.53 at the time of publication Wednesday. 

Related Links:

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Analyst: 5 Headwinds Facing Skyworks Solutions

Photo courtesy of Skyworks.