Analysts View Skyworks Shares Positively Despite Apple, China Weaknesses

Apple Inc. AAPL supplier Skyworks Solutions Inc SWKS reported in-line first-quarter results and announced a $2-billion stock buyback program Tuesday. 

The Analysts

BMO Capital Market's Ambrish Srivastava maintained an Outperform rating on Skyworks and raised the price target from $85 to $94.

Raymond James' Chris Caso reiterated a Market Perform rating.

MKM Partners analyst Ruben Roy maintained a Buy rating and lifted the price target from $85 to $90.

BMO: Skyworks Shares Have Attractive Risk-Reward Profile 

Skyworks' March quarter guidance fell short, with mobile — which accounts for about 73 percent of revenue — expected to trail estimates even as the diversified broad markets demand remained strong, BMO's Srivastava said in a Wednesday note.

The analyst sees the $2-billion share repurchase announced by the company as a big positive. The free cash flow and sales margin target of 30 percent seems sustainable, he said. 

BMO lowered its FY19 estimates, while it maintained its FY20 as well as CY20 estimates largely unchanged.

The firm said it continues to like the stock.

"An ability to sustain a high level of FCF-sales ratio, along with a higher commitment to capital allocation, at 60-75 percent, a number reset in the nearer term, tied together with an attractive valuation, make for an attractive risk-reward prospect for the shares," Srivastava said. 

Raymond James: Traction In 5G, New BAW Technology Are Key 

After the issuance of below-consensus March quarter revenue guidance, a further cut cannot be ruled out on the basis of a potential Apple decision to end the life of a model or just further sell-through weakness, Raymond James' Caso said. Yet the analyst sees this as a healthy cut, as expectations are appropriately reduced. 

As expected, weakness in China and at Apple weighed on December quarter results, and the March quarter guidance reflected weakness in iPhone and China, cushioned by cost control, the analyst said. 

"The key in determining whether the stock is worth owning in the interim are their prospects in 5G and new BAW technology, something for which we will seek more clarity over the coming months." 

MKM: 'We Continue To View Skyworks Shares Positively'

Notwithstanding persistent near-term head winds to Skyworks' mobile business, the company is a longer-term beneficiary of increasing RF content across a diverse set of end market applications, MKM analyst Roy said in a note. 

The analyst said he expects revenue growth to accelerate in the second half of 2019, as "new designs with increased dollar content ramp into production."

The company's profitability metrics will continue to outperform peers, Roy said. 

MKM said it continues to view Skyworks shares positively given their discounted valuation to the semiconductor peer group.

The Price Action

Skyworks shares were surging 12.4 percent to $85.38 at the time of publication Wednesday. 

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Photo courtesy of Skyworks.