Skyworks Solutions Inc. (SWKS, Financial) has displayed fantastic performance this year as the stock is up almost 50% year to date. Despite climbing nearly 50%, it still has plenty of fuel to run higher. The semiconductor chips manufacturer reported robust fourth-quarter results on Nov. 6.
For the fourth quarter, the company shared earnings per share of $1.82, exceeding the analysts' estimate by 7 cents and representing a surge of 24% year over year. The semiconductor chips manufacturer's earnings per share growth outdid overall revenue growth on the back of enhancing margins as well as the effectiveness of stock buybacks.
On the other hand, its revenue came in at $985 million, again exceeding the consensus by $4.3 million. Most significantly, that figure represents a growth of approximately 18% year over year. Moreover, cash flow from operations was $425 million, whereas its cash balance at the end of the quarter was $1.6 billion.
The key smartphone makers are using the chips manufactured by Skyworks including Samsung (SSNLF, Financial), Apple (AAPL, Financial) and Huawei to power their flagship devices. Due to this, the company has successfully managed to clock consistent growth.
Apple recently launched its new iPhone 8 which comprises at least four Skyworks’ chips. Not only iPhone8, but iPhone 8 Plus also uses four chips from Skyworks. Although Apple launched three new iPhones a few months ago, its iPhone X has not shipped yet but is already in production.
During the quarter, the company shared guidance in line with the analysts' estimate. That might be due to recent reports that throw light on weak iPhone demand as well as manufacturing issues. Apart from this, Apple is also telling suppliers that it will reduce iPhone component orders by 50% for the last quarter of this year.
Skyworks currently generates a significant portion of its revenue from Apple but is aggressively trying to diversify its revenue stream. The company is exploring high-growth areas such as the Internet of Things, which will certainly reap fruitful results in the future.
Also, Skyworks has signed a deal with Huawei to supply chips for its high-end smartphones like P9 and P9 Plus. The Chinese smartphone maker’s market share carries on growing at a healthy rate and has turned itself into the world’s third-largest smartphone manufacturer.
Furthermore, several analysts have increased their price target on Skyworks. T. Michael Walkley, an analyst at Nomura, raised the price target to $125 per share from $117 per share. Bank of America/Merrill Lynch analysts also are using the similar price target, throwing light on almost 15% upside.
Summing up
Skyworks Solutions has been doing really well over the past 18 months as its shares are up almost 100%. The most significant thing to notice in the case of Skyworks is that it is completely debt free and continues producing cash at a healthy rate. The chip manufacturer is facing near-term issues that will vanish in the coming quarters as it carries on pursuing high-growth areas.
On the other hand, the semiconductor chips manufacturer offers a healthy dividend yield of 1.15% and has a payout ratio of just 22%, suggesting it has enormous room to increase its dividend in the years ahead. Also, it trades at a price-earnings (P/E) ratio of 20 (ttm), making it undervalued.
Despite reporting strong fourth-quarter results, shares of Skyworks Solutions are down more than 5% mainly due to its in-line guidance. The pullback, though, represents a good buying opportunity. As a result, shareholders should consider buying the stock at current levels as it is well positioned to gain huge benefits going forward.
Disclosure: No positions in the stocks mentioned in this article.
