Why Did Skyworks Shares Rise despite Lower Guidance?



Skyworks shares rise 4%

In the previous part of this series, we saw that Skyworks Solutions’ (SWKS) shares rose ~4% at $67.21 in the after-hours trading session on January 28 despite the company reporting lower-than-expected guidance. Let’s first look at the company’s guidance for fiscal 2Q16 and then understand the factors driving the share price.

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Fiscal 2Q16 guidance

For fiscal 2Q16, Skyworks expects its revenue to rise 1.7% year-over-year to $775 million—below the analyst estimate of $818 million. The company expects its non-GAAP[1. generally accepted accounting principle] earnings per share to rise 8% year-over-year to $1.24, below the consensus estimate of $1.32.

Although the company’s guidance doesn’t meet analysts’ estimate, it is stronger than fiscal 2Q15. Unlike Cirrus Logic (CRUS), Skyworks’ revenue doesn’t depend heavily on Apple (AAPL). It isn’t strongly concentrated in a single consumer market either. Its diversified customer base mitigates the impact of weakness in any one consumer market.

That being said, the company is largely exposed to macroeconomic conditions in China (MCHI), which accounts for ~70% of its revenue. Its fiscal 2Q16 guidance is lower than its fiscal 1Q16 results due to weakness in China.

Factors driving share price

According to Pacific Crest, like Cirrus Logic, Skyworks should benefit from the upcoming iPhone 7, which is scheduled to launch in September 2016. The new iPhone 7 is expected to have 15% more radio frequency content than the iPhone 6s. Even if iPhone sales remain flat, SWKS would benefit from the higher content.

Skyworks shares

Skyworks’ shares fell 23% over the year. They’re currently hovering above $64, which is at the lower end of its 52-week range of $58.50 to $112.88. Analysts have rated the stock as a ‘hold’ and set a 12-month average price target at $98.29, which has a potential upside of 50% from the current price. The company has a market capitalization of $12.38 billion and a price-to-earnings ratio of 15.8. The company’s PE ratio is below rival Qorvo’s (QRVO) ratio of 48.2 and the industry average of 18.0.


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