Up 30% Over The Last Year, Is Skyworks Stock Poised For Further Gains?

by Trefis Team
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Skyworks (NASDAQ:SWKS), a company that sells analog semiconductors and radio frequency (RF) products saw its stock price rise by about 30% over the last 12 months. The stock is also up almost 130% since the end of 2018. The recent rally is driven by the ongoing transition to 5G wireless technology, which is leading to stronger demand for Skyworks’ chips from mobile devices and wireless infrastructure equipment. Are further gains in the cards for Skyworks or is the good news priced in the stock for the near-term? Let’s take a look at what’s driven the gains in Skyworks’ stock price in recent years and what the outlook for the company could be like. See our dashboard analysis on Why Has Skyworks Stock Gained 136% Since 2018? for a detailed overview of how Skyworks’ Revenues, Margins, and multiple have changed in recent years.

What Has Driven Skyworks Stock Price In Recent Years

Skyworks sells analog semiconductors that include power amplifiers, front-end modules, and RF products that go into mobile and wireless devices as well as wireless infrastructure equipment. Skyworks Revenues have declined from around $3.9 billion in FY’18  (the company’s fiscal year ends on the Friday closest to September 30)  to about $3.4 billion in FY’20. The decline was partly due to the ban on exports to China’s Huawei, a key customer, although this was partly offset by stronger 5G solutions sales. Revenue remained almost flat over the last 12 months. Skyworks’ Net Margin stood at about 24% over the last 12 months, roughly flat compared to FY’18. The company’s EPS stood at about $4.84 for the last 12 months, down from about $5.06 in FY’18. However, the markets have valued Skyworks much more richly, with its trailing P/E multiple expanding from about 14x in 2018 to about 33x currently (based on trailing 12-month EPS), in anticipation of stronger sales from the ongoing 5G upgrades.

Are More Gains In The Cards For Skyworks Stock?

Skyworks stands to benefit significantly from 5G upgrades, as 5G systems are more complex, with more challenging RF front-end and analog component designs. Skyworks should also benefit from strong demand from Apple – its largest customer, which reportedly accounts for about half of its Revenue. Apple has been seeing robust demand for its new 5G iPhone 12 handsets and has reportedly raised its iPhone production targets for H1 2021 by 30% compared to last year per Nikkei. [1]. Apart from smartphones, the company is also expected to see stronger demand for solutions for next-generation MIMO (Multiple-Input Multiple-Output) base stations and small cell installations. Skyworks’ revenue is likely to grow by about 17% over 2021, per consensus estimates with its adjusted EPS likely to rise to over $7.50. This means that the stock trades at about 21x projected earnings, which is relatively reasonable considering the company’s growth. This could give the company further room for upside in the near-term. That being said, the semiconductor market is quite cyclical due to the short lifespan of the technologies, and if the 5G wireless upgrade cycle shows signs of saturation, this could impact the stock.

While Skyworks stock may be worth considering, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Intel vs Cisco.

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Notes:
  1. Apple plans 30% boost in iPhone production for first half of 2021, Nikkei []
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