Skyworks Hasn't Reached Ceiling

2/23/2015


  Recent Price
$83
  Dividend
$0.52
  Yield
0.6%
  P/E Ratio
22
  Shares (millions)
194
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$84.95 - $31.27

Skyworks Solutions ($83; SWKS) has the attributes that make growth investors salivate.

Analysts project per-share-profit growth of 31% over the next 12 months and 21% annually over the next five years. For those of you who question such lofty projections, realize that these numbers reflect a sharp deceleration from the recent past. Over the last 12 months, Skyworks grew sales 41%, per-share profits 80%, and operating cash flow 95%. The bulk of this growth stemmed from new business, not acquisitions.

While the growth is undeniable, investors need not pay too much for it. Skyworks has returned 162% over the last year, yet still trades at just 16 times expected year-ahead earnings, 22% below the average for S&P 1500 Index semiconductor stocks. The stock looks even cheaper relative to its expected growth, as the PEG ratio (forward P/E divided by the long-term growth estimate) of 0.7 is 44% below the industry average of 1.3.

Growth and value aren't the only characteristics that separate Skyworks from its peers. The stock earns a Quadrix® Overall score of 97, powered by scores of 96 or higher in five of the six categories, as well as both sector-specific scores. In fact, Skyworks, a Buy and a Long-Term Buy, ranks either first or second in its industry for Overall, five category scores, and both sector scores.

The profit consensus for each of the next two fiscal years has risen at least 7% over the last 30 days. Projections are fine, but they beg the question — can we trust Skyworks to grow as fast as expected?

While consensus estimates are called estimates for a reason, we see reason for optimism. Demand for smartphones, the company's most powerful growth engine, remains robust. Key customer Apple ($129; AAPL) sold a record 74.5 million smartphones in the December quarter.

We can't predict when the smartphone wave will break, but Skyworks is better prepared for that reality than most component makers because it plays in a lot of other pools. The company counts among its end markets automobiles; broadband gear; computers; energy-management systems; GPS units; industrial, medical and military equipment; and tablets.

Expect that list of end markets to expand as consumers demand ever more
wireless connectivity, which in turn will require increasingly complex systems.

A Morgan Stanley report estimates that by 2020, 75 billion devices will be wirelessly connected with other devices. Lots of companies talk about tapping into this trend, but Skyworks is already there. Given its mix of 2,500 products — including amplifiers, battery chargers, diodes, filters, frequency modulators, switches, and a host of other components — complexity means more opportunity.

Also encouraging is Skyworks' commitment to share the wealth with stockholders. Going forward, the company plans to distribute 40% of its free cash flow via the dividend (initiated in March and raised in November) and buybacks. In January the CEO said the company planned to boost the dividend annually.

You can obtain an annual report for Skyworks Solutions Inc. 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
Dec '14
1.26
vs.
0.67
59%
74.97
-
44.06
23 - 14
Sep '14
1.12
vs.
0.64
51%
59.25
-
45.50
21 - 16
Jun '14
0.83
vs.
0.54
35%
49.10
-
34.30
20 - 14
Mar '14
0.62
vs.
0.48
13%
39.33
-
27.20
17 - 12
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Est.
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
2.29
3.24
0.22
59.25
-
23.27
18 - 7
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
100
40
99
96
99
97

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


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