Shares of Skyworks Solutions (SWKS) are on the rise after Goldman Sachs analyst Toshiya Hari upgraded the stock to Buy, saying he sees smartphone build plans stabilizing and forming a bottom. He also expects fundamentals in the mobile space to improve in late 2019 and into 2020 with the introduction of 5G phones. Following quarterly results, his peer at Baird also elevated Skyworks to Fresh Pick.
QUARTERLY RESULTS. On Tuesday after market close, Skyworks reported first quarter earnings per share of $1.83 and revenue of $972M, both below consensus of $1.85 and $978.01M, respectively. The company also said it sees second quarter earnings per share of $1.43, with consensus at $1.53, and revenue for the quarter between $800M-$820M, worse than the expected $853.87M. Additionally, Skyworks announced that its board of directors has authorized the repurchase of up to $2B of the company's common stock from time to time prior to January 30, 2021. This newly authorized stock repurchase program replaces in its entirety the $1B stock repurchase program that was approved by the board on January 31, 2018, and had approximately $129M of repurchase authority remaining. The company currently expects to fund the repurchase program using the company's working capital.
BUY SKYWORKS: In a research note to investors on Wednesday, Goldman Sachs' Hari upgraded Skyworks to Buy from Neutral and raised his price target on the stock to $96 from $73. The analyst said he believes smartphone build plans are stabilizing and forming a bottom and expects the second-derivative in year over year growth to improve beginning in the second quarter. Further, Hari said he sees fundamentals in the mobile space improving in late 2019 and into 2020 with the introduction of 5G phones, and expects the improving fundamental backdrop coupled with early traction in BAW filters to drive multiple expansion on an absolute and relative basis for Skyworks. The market is under-estimating the sustainability of growth into 2020, the analyst contended, adding that he would therefore expect positive earnings revisions through the second half of 2019 as visibility improves. Overall, with fundamentals likely bottoming in the first quarter timeframe and valuation well below historical levels, Hari argued that risk/reward is positive and recommended investors buy Skyworks ahead of what he expects to be a positive revision cycle for the company with his price target implying 20% potential upside.
REBOUND AHEAD: Voicing a similar opinion, Baird analyst Tristan Gerra elevated Skyworks to Fresh Pick following first quarter results. The analyst said in a research note of his own that Skyworks' valuation is compelling at current levels, and that he believes investors will focus on the second half of 2019 and look for a rebound driven by initial 5G infrastructure ramps, content gains in smartphones, and continued Internet of Things momentum. Gerra reiterated an Outperform rating and $90 price target on the shares. Meanwhile, BMO Capital analyst Ambrish Srivastava raised his price target on Skyworks to $94 from $85 and reiterated an Outperform rating on the stock, saying that while its guidance fell short of consensus, the company announced a new $2B buyback amid a tough macro environment. The analyst noted that he remains positive on Skyworks and believes that its free cash flow to sales margin target of 30% appears sustainable. B. Riley FBR analyst Craig Ellis also raised his price target for Skyworks Solutions to $94 from $90 following quarterly results, while reiterating a Buy rating on the shares.
PRICE ACTION: In late morning trading, shares of Skyworks have gained almost 12% to $84.70.
Skyworks
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