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Skyworks (SWKS) Q3 Earnings: What???s Ahead for the Stock?

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Semiconductor manufacturer Skyworks Solutions Inc. (SWKS - Free Report) is scheduled to report third-quarter fiscal 2016 results after the closing bell on Jul 21. In the last reported quarter, the company’s adjusted earnings beat the Zacks Consensus Estimate by a penny. Skyworks has beaten the earnings estimates consecutively in the last two quarters with an average positive earnings surprise of 0.98% over the trailing four quarters. Let’s see how things are shaping up for this announcement.

Key Factors in the Third Quarter

High quality environment-friendly products and sustainable business practices have been the key differentiators for Skyworks amid this competitive environment. The company is aggressively expanding into new vertical markets. It is investing heavily to increase its footprint in the traditional analog segments like automotive, medical and industrial. These are highly attractive markets with longer product life cycles, fewer competitors and higher margins.

As demand for mobile Internet applications is exploding with the broad proliferation of smartphones, net books, note books, caplets and other forms of embedded wireless devices, Skyworks continues to gain traction. With continued investments in research and development to increase its IoT portfolio, the company expects to gain more businesses, going forward.

During the fiscal third quarter, the company launched a set of highly advanced amplifiers, specifically addressing the rapidly growing small cell infrastructure market. These products provide best-in-class performance for original equipment manufacturers and enable them to simplify their system architecture to reduce costs. Such innovative products are likely to augment the revenues of the company in the long term.

However, the wireless handset market is intensely competitive and exposed to pricing pressure. Skyworks has to continually introduce new products and remain updated on technological advancements to fend off competition. Heavy investments in R&D escalate operating expenses, often without any significant contribution to its top line.

To keep competition at bay, Skyworks has to continually introduce innovative products and remain updated on technological advancements. Heavy investments in R&D are escalating operating expenses and contracting margins. As other players in the market gear up to exploit the increasing demand for smartphones, pricing pressure is expected to intensify further.

SKYWORKS SOLUTN Price and EPS Surprise

SKYWORKS SOLUTN Price and EPS Surprise | SKYWORKS SOLUTN Quote

Earnings Whispers

Our proven model does not conclusively show that Skyworks is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%.

Zacks Rank: Skyworks’ Zacks Rank #3, when combined with a 0.00% ESP, makes an earnings beat unlikely this quarter.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Comerica Incorporated (CMA - Free Report) has an Earnings ESP of +1.47% and a Zacks Rank #3.

Federated Investors, Inc. has an Earnings ESP of +2.13% and carries a Zacks Rank #3.

Cullen/Frost Bankers, Inc. (CFR - Free Report) has an Earnings ESP of +0.96% and carries a Zacks Rank #3.

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