The third-quarter reporting season has kicked off, and with tech earnings imminent, an analyst at KeyBanc Capital Markets named their favorite stocks in the semiconductor space.
KeyBanc Positive On Auto, Smartphone Suppliers: Semiconductor stocks with meaningful exposure to the automotive sector will benefit, analyst John Vinh said in a note this week.
The expectations are based on a continued recovery in the auto sector in the third quarter from factory shutdowns, and a continuation of the recovery into the fourth quarter due to new program and model launches, the analyst said.
Chipmakers supplying to smartphone makers stand to gain from healthy store inventories, stabilizing sell-through ahead of the iPhone 12 launch, he said.
Huawei export restrictions create opportunities from incremental demand from OEM competitors such as Oppo, Vivo and Xiaomi, Vinh said.
Why NXP, Qualcomm Are Well-Positioned: With almost 50% exposure to automotive, NXP Semiconductors NV NXPI is best positioned to benefit from a sustained recovery in the automotive sector through the end of the year, the analyst said. Underlying core trends remain healthy, he said.
QUALCOMM, Inc. QCOM is another name that remains well-positioned, given incremental share gains in mid-to-low end 5G smartphones vs. Mediatek; a higher attach rate of mmW iPhone 12 SKUs; and incremental demand from Oppo, Vivo and Xiaomi, Vinh said.
Upside Likely For Skyworks: Skyworks Solutions Inc SWKS is poised to report upside to results and guidance, given content gains in the new 5G iPhone 12 and increased demand from China OEMs, Vinh said.
Yet COVID-19 constraints in Mexicali could limit near-term gross margin expansion, the analyst said.
KeyBanc Constructive On Synaptics: Synaptics, Incorporated's SYNA transformation and continued margin expansion story keep KeyBanc constructive on the company, he said.
"However, Huawei pullins in F1Q (Sep) could create a near-term air pocket in F2Q."
The Semiconductor Ratings, Price Targets:
- NXP: Overweight/$150
- Qualcomm: Overweight/$145
- Skyworks: Overweight/$160
- Synaptics: Overweight/$100
- The Price Action: The iShares PHLX Semiconductor ETF SOXX was down 0.4% at $328.12 at the close Wednesday and is higher by about 33% year-to-date.
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