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Bull Of The Day: Skyworks Solutions (SWKS)

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The 4th Industrial Revolution is upon us, and connectivity is becoming a central focus as 5G technology rolls out. Skyworks (SWKS - Free Report) and its growing portfolio of digitally connected chips are essential components to the 'smart' world we live in. Business spending is beginning to pick up and their focus is going to be on building out their digital infrastructure which will provide a tailwind for this well-positioned chip giant.

Today almost everything we interact with is digitally linked to the internet, also known as the internet of things (IoT) ecosystem. 4G networks weren't built to handle the volume of data or required speed of this rapidly expanding ecosystem of connected devices. The 5G revolution is an essential transition to allow our increasingly 'smart' world to function in real-time.  

Skyworks' cutting-edge chip technology is critical for the ushering out of 5G devices, and this past quarterly report really illustrated the vitality of this enterprise. The company's vision of Connecting Everyone and Everything, All the Time is coming to fruition, and analysts are getting excited. Analysts have been significantly raising their EPS estimates across every time horizon, propelling SWKS to a Zacks Rank #1 (Strong Buy).

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

Skyworks Solutions, Inc. price-consensus-eps-surprise-chart | Skyworks Solutions, Inc. Quote

Latest Earnings Report (1/28)

Skyworks had an exceptionally strong earnings report to round out what will go down as one of the craziest years in history. The business illustrated a blowout quarter, with an enormous top & bottom-line beat in addition to increased forward guidance that had analysts racing to boost their price targets.

The innovation-driven enterprise reported record revenues of over $1.5 billion in its December quarter, up 69% from the prior year. Skyworks has never had a more profitable quarter with $516 million on the bottom-line, illustrating nearly 100% expansion compared to last year's December quarter results.

The new 5G iPhone release, along with other leading 5G devices, have been a sizable tailwind for the business. Skyworks' Sky5 chip portfolio is accelerating with next-generation 5G, "supporting the next wave of 5G launches at Samsung, Oppo, Vivo, Xiaomi and other Tier-1 players" (aka Apple (AAPL - Free Report) , its #1 customer), according to the quarterly release.

In its earnings call, President & CEO Liam Griffin said that the company was dedicated to investing more in its own fabs (aka internal manufacturing) to keep up with the swelling chip demand. The company ended the year with $1 billion in cash & equivalents, no debt, and an over $1 billion run rate in post-dividend free-cash-flows giving the enterprise enormous financial flexibility for internal investment (which the business has continuously done), and synergy driving acquisitions.

What's Next For SWKS

SWKS shares surged to fresh highs following this unbelievable quarter, with the stock trading in a range between roughly $170 - $190 since this report was released. The markets are still digesting the earnings news, and the implications of this shortening recovery timeline, but it would appear that SWKS is preparing to break out.

Skyworks is spending the money to continue growing its footprint in fabrication, so the business doesn't have to rely too heavily on external manufacturing. The company has been investing heavily in internal development of 5G chips for the IoT explosion that has already begun and SWKS is just beginning to see the benefits.

SWKS is expected to see a 68% EPS improvement in its fiscal 2021 (ending September 30th), on top of a 47% increase in revenues.

SWKS remains at a relative discount despite its nearly 20% price surge since its earnings report at the end of January. The stock is traders a price to 12-month forward earnings of 16.7x compared to the tech sectors 26.8x.

Final Thoughts

I am very bullish on SWKS positioning in the marketplace, with a nearly 25% market share in RF chips for smartphones. The company is well-positioned for the commencing IoT & 5G revolution. 11 out of 19 analysts are calling this stock a buy today with no sell ratings. Its most optimistic price target represents a 35% upside, which I believe is very attainable after that stellar earnings report at the end of January.

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