Massachusetts based semi-conductor maker Skyworks Solutions Inc. (SWKS, Financial) just got an additional $15 per share target price boost from sell-side analyst firm Topeka Capital Markets. From its earlier estimate of $90 a share, it has upgraded the stock to $105 a share, owing to the incremental demand for smartphones worldwide, with a lot of them seeking upgrades on platforms of flagship models. One of the prime customers for Skyworks is Apple Inc. (AAPL, Financial), who recently launched the iPhone 6 smartphone which uses the radio frequency chips of the company. Pacific Crest reported in January, that Apple’s demands for Skyworks chips have risen by as much as 20% in recent times. The rival Korean major, Samsung Electronics (SSNLF, Financial) has also been buying radio frequency chips for some of their recent flagship models like the Galaxy Note 4 phablet and Galaxy S5 smartphone from Skyworks, which have witnessed a high demand ever since their market launch.
The market is very positive about the stocks of Skyworks and has pegged high hopes on it. Publications by Bloomberg mentioned that 17 out of 21 analysts have rated the stock as a ‘buy’, whereas 3 of them have extended a ‘hold’ rating. The general consensus target price (12-month forecast) is $94.76, with the highest perhaps from D.A. Davidson & Co. whose target price for Skyworks stands at $110 with a ‘buy’ rating.
What is Skyworks riding on?
- Other than 17 out of the 21 analysts putting a ‘buy’ rating on the stock, there are other numbers which are attractive to look at; a 50-day moving average price of $85 and a 200-day moving average of $68 for the stock, the net income growth of 106.6% year-on-year ($94.50 million to $195.20 million) which exceeds the S&P 500 estimates for the Semiconductors’ industry, a PE ratio of 33.04, revenue of $805.50 million in the last quarter of 2014 compared to estimates of $772.54 million, market capital of $18.29 billion are a set of the most attractive numbers. Skyworks has been performing in the upper 30% of its 1-year stock price range. The Daily-Dollar volume (average share volume multiplied by price) has been $696.7 million.
- Apple Inc. and Samsung are the best customers for the company at the moment, whose flagship devices are driving the demand for Skyworks radio frequency chips. Other than consumer brands, there are customized solutions for other industrial sectors like automotive, broadband, cellular infrastructure, energy management, global positioning systems (GPS), wireless networking, military, and the medical sector as well.
Competitor analysis
Perhaps the better known name in the semi-conductor industry is Qualcomm (QCOM, Financial), which was in the news recently for the $15 billion share buyback plan which they unveiled. BMO Capital, which follows the stock real close, increased their target price for the stock from $82 to $85, and even put an ‘outperform’ tag on the stock. For the existing shareholders, the management announced a hike of 14% on dividends, which could increase the quarterly payout of EPS from 42c to 48c a share. While all of it sounds rosy, there is speculation that issues like the $975 million legal bill in China, added with the below par financial performance and lackluster performance of the Snapdragon 810 chip, just may not keep the shine of the stock for much longer. In other words, the fortunes of Skyworks Solution and Qualcomm seem to be headed in opposite directions.
Final thoughts
Skyworks Solutions can be relatively more assured about its stronghold in the market now. With the majority of the analysts putting the faith in them with high estimates, and the 2 biggest known consumer electronics brands as customers, there is not much to worry. On the other side, there are reports about low-cost handset makers in Asia, like those of China (Xiaomi) and some of the other Indian brands eyeing an entry as customers of Skyworks Solutions. This gives Skyworks a strong position across different markets, and makes them a safer bet in the long run.
