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BMO Capital Markets: Skyworks Has More Than 25% Upside

BMO Capital Markets: Skyworks Has More Than 25% Upside
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Skyworks Solutions Inc (NASDAQ: SWKS) reported better-than-expected fiscal 2018 first-quarter results Monday and issued upbeat guidance for the second quarter. The company announced a $1-billion stock buyback plan and raised its cash return targets.

The Analyst

BMO Capital Markets analyst Ambrish Srivastava upgraded Skyworks from Market Perform to Outperform and increased the price target from $100 to $120, suggesting roughly 27-percent upside.

The Thesis

Skyworks' ability to sustain a higher free cash flow-to-sales ratio; a higher commitment to capital allocation; a number reset in the nearer term; and an attractive valuation prompted the upgrade, Srivastava said in a Tuesday note.

BMO raised its fiscal 2018 and 2019 earnings per share estimates for Skyworks from $6.78 and $7.57, respectively, to $7.31 and $8.54. The lower revenue reset for 2018 was less than what Srivastava modeled, he said. 

BMO's estimates are now higher due to a combination of lower-than-expected tax rates for 2018 and 2019 and higher revenues, the analyst said. 

"While we have thought of Skyworks' operating model as more analog-like given its OM and trajectory of the FCF-sales ratio, we had struggled with the lack of follow-through on capital allocation," Srivastava said. 

Skyworks has tackled the issue by raising its capital allocation target from a prior 40-50 percent of the free cash flow to 60-75 percent, the analyst said. 

The valuation of Skyworks shares is attractive, according to BMO. 

The Price Action

Skyworks shares are down over 3 percent over the past year.

Shares were surging 11.14 percent to $105.23 after the open Tuesday. 

Related Links:

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Latest Ratings for SWKS

Nov 2018CitigroupDowngradesBuyNeutral
Nov 2018Charter EquityDowngradesBuyMarket Perform
Nov 2018Bank of AmericaDowngradesBuyNeutral

View More Analyst Ratings for SWKS
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Posted-In: Ambrish Srivastava BMO Capital MarketsAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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