After struggling throughout 2016, Skyworks Solutions Inc. (SWKS, Financial) is off to a stunning start in 2017. The stock has already appreciated over 20% in 2017 and it would not be surprising if its stellar run continues for the rest of the year. Given that Skyworks is still trading at 19 times trailing price-earnings (P/E) ratio and has a dividend yield of 1.21%, the stock is undervalued and investors can expect it to cross the $100 mark in the coming months. As a result, investors should consider buying the stock despite the recent surge.
Terrific earnings beat
Skyworks’ strong start to 2017 has been driven by its spectacular earnings beat. The positive earnings surprise saw the stock jump over 10% in a single trading session. The company reported quarterly revenue of $914 million. Although sales were down a meager 1% year over year, it surpassed estimates by over $11 million.
On the earnings front, Skyworks reported EPS of $1.61, three cents above the consensus. The company expects its revenue to increase 8% in the upcoming quarter and wants to capitalize on the stock’s undervaluation as it sanctioned a $500 million share repurchase program, replacing the $400 million program authorized last year.
The company, which is an Apple (AAPL, Financial) supplier, has capitalized on its diverse revenue stream and is focusing on several other markets. Skyworks has had a presence in the internet of things (IoT) market for quite some time now and its early mover’s advantage is finally starting to show.
CEO Liam Griffin said broad market accounted for roughly 25% of Skyworks’ entire revenue and is expected to grow at a compounded annual growth rate of 10% to 15% going forward. This growth should help the company further diversify its revenue stream and makes the stock a very good pick for investors despite the recent uptick.
Conclusion
Despite Skyworks’ recent rally, I think the stock is still undervalued and would make a very good pick for long-term investors. The company should witness faster growth due to its presence in the IoT market, and its valuation and dividend yield make it very attractive. I am bullish on the stock and expect it to continue moving higher in 2017.
Disclosure: No position.
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