CLSA Upgrades Skyworks To Outperform, Says Guidance Is Conservative

Following the conservative guidance issued by Skyworks Solutions Inc SWKS and the unfavorable stock reaction to it, CLSA’s Christopher Caso believes the risk-reward is now favorable.

Caso upgraded the rating on the company from Underperform to Outperform, while raising the price target from $73 to $77.

Conservative Guidance

“We believes the biggest factor affecting its 2H revenue is not that SWKS has lost content, but rather that it is one of the last suppliers to still be affected by legacy Apple Inc. AAPL inventory,” the analyst mentioned.

However, Caso believes that despite this, the guidance includes conservative market assumptions for the near term, leaving room for upside in 2017, when legacy Apple revenue returns.

“After working through the math, we think SWKS’ 2H16 guidance conservatively reflects AAPL content gains, zero legacy units, and flat YoY China growth,” the analyst stated.

Caso also pointed out that investors have been finding it difficult to reconcile the company’s revenue guidance with Skyworks Solutions’ claims that its flagship handset content was expected to grow 20 percent year-on-year in 2016.

The analyst expects the company’s 2H revenue to be impacted by content gains on the iPhone 7, the 2H16 overbuild and persisting excess channel inventory of legacy iPhone components.

“Given this is the first quarter SWKS’ new CEO is providing guidance, we are not surprised by such conservatism,” Caso added.

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