Skyworks Solutions is a Buy Despite Apple's Earnings
Apple (AAPL) suppliers have been punished over the last few weeks due to the concerns regarding a slowdown in iPhone sales. Investors’ fears turned to reality when Apple released its quarterly earnings report yesterday affirming slow growth.While Apple managed to beat the earnings estimates, the top-line came in a little less than what the consensus were modeling. However, what makes the report bad for Apple investors is the fact that Apple reported the slowest growth in iPhone sales in decades.
Shares of Apple suppliers reacted negatively to this news and have lost considerable value over the last few months. Although the downfall of Apple suppliers is understandable, I think Skyworks Solutions (SWKS) is being unfairly punished by the market as the company doesn’t rely very heavily on Apple anymore.
Skyworks Solutions is down almost 40% from its 52-week highs despite reporting strong revenue and earnings growth, and raising its guidance for the sixth time in a row. While the weakness in iPhone sales may have a negative impact on Skyworks Solutions’ revenue, it doesn’t justify the company’s recent plunge.
Assuming that Apple accounts for 25% of Skyworks Solutions’ revenue, the recent weakness in iPhone sales will only have about 2% impact on the company’s guidance. Skyworks Solutions has a diversified business model and the recent downturn because of weakness in iPhone sales is unjustified.
Skyworks Solutions is expected to report its earnings tomorrow and I think the company will beat analysts’ estimates again and will at least affirm the previous guidance for the upcoming quarter. Even if the company slashes its guidance, I think all the negative news has already been priced in Skyworks Solutions’ stock. In the long run, the stock has nowhere to go but up, and investors should use any dip as an entry-point in the stock.
After the recent plunge, Skyworks Solutions is trading at 16x trailing earnings. For a company that has a dividend yield of 1.55%, and is expected to grow considerably going forward, the valuation is dirt cheap. I expect the Skyworks Solutions to beat earnings and revenue estimates when it reports tomorrow. Investors will keep a close eye on the company’s guidance, however I think all the bad news is baked in the current price and the stock can only move higher. So, I think investors should load up on Skyworks Solutions on any signs of weakness.
Published on Jan 27, 2016By Akshansh Gandhi