Skyworks Priced For Power Surge

12/9/2013


  Recent Price
$28
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
12
  Shares (millions)
190
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$27.64 - $19.25

Skyworks Solutions ($28; SWKS) makes radio-frequency semiconductors that connect mobile devices to each other. The company enjoys strong operating momentum, an attractive outlook, and a balance sheet stuffed with cash. But investors have mistakenly tuned out the stock, which trades at a sharp discount to both historical norms and its peer group.

Earnings per share rose 16% in fiscal 2013 ended September on 14% sales growth, while operating cash flow jumped 75%. Growth was driven by rising demand for smartphones and tablets — and Skyworks' increased presence in those devices. Skyworks can now provide $10 to $12 of a smartphone's components, more than twice what it could supply in 2011.

Exposure to adjacent markets should fuel future growth as cars, home appliances, and medical devices become connected to the internet. The number of connected devices could reach 50 billion by 2020, up from 8.7 billion in 2012. In the year ahead, Skyworks seems capable of maintaining double-digit growth for sales and per-share profits. Scoring at least 97 in both sector-specific ranks, the stock, already a Long-Term Buy, is being added to the Buy List.

Business breakdown

Skyworks races against obsolescence in the volatile semiconductor industry. Prices on its established products erode 5% to 10% a year, consistent with the industry as a whole. That forces a vicious cycle of raising volumes, lowering costs, and developing new products. However, capital requirements are fairly modest, since Skyworks contracts with foundries to make its semiconductors.

Skyworks has expanded its customer base by moving into power-management technology, which extends the lives of smartphone and tablet batteries. Still, Apple ($566; AAPL) supplier Foxconn Technology of Taiwan and South Korea's Samsung Electronics ($1,400; SSNLF) represented 51% of Skyworks' revenue in fiscal 2013, up from 46% in 2012. About 55% of sales went to manufacturers in China, with another 39% to factories elsewhere in the Asia-Pacific region.

Free cash flow nearly doubled to $376 million in the past 12 months, and Skyworks has let most of that cash pool on its balance sheet. Net cash totals $2.69 per share, roughly 10% of the stock price. The company made a pair of acquisitions in the past three years for a combined price of $556 million and continues to seek strategic uses for its cash. Stock buybacks have shaved 2% from the share count in the past year, with Skyworks paying an average price of less than $23 per share. Management said in October that it will consider offering a dividend in the future.

At 12 times trailing earnings, the stock trades 44% below the median for S&P 1500 semiconductor stocks and 43% below its three-year average. Consensus estimates target earnings per share of $2.56 for the year ending September, implying 16% growth. Sales are projected to rise 10%. If the trailing P/E ratio holds at 12 and Skyworks meets the 2014 profit estimate, its shares will rally 16% over the next 12 months.

An annual report for Skyworks Solutions Inc. is available at 20 Sylvan Road, Woburn, MA 01801; (781) 376-3000; www.skyworksinc.com.

SKYWORKS SOLUTIONS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '13
0.64
vs.
0.53
13%
26.46
-
20.95
13 - 10
Jun '13
0.54
vs.
0.45
12%
24.58
-
19.57
12 - 10
Mar '13
0.48
vs.
0.42
17%
25.10
-
20.25
13 - 10
Dec '12
0.55
vs.
0.51
15%
24.45
-
19.21
13 - 10
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
1.79
2.20
0.00
26.46
-
19.21
12 - 9
2012
1.57
1.90
0.00
31.44
-
13.72
17 - 7
2011
1.42
1.89
0.00
37.82
-
17.94
20 - 9
2010
1.07
1.26
0.00
21.42
-
10.05
17 - 8
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
94
90
95
87
60
43

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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