Starbucks and Skyworks

Last night, two companies that I've been recommending on Real Money Pro reported quarterly results. One company beat the quarterly expectations published by Wall Street and tightened its guidance. The other also beat its September quarter expectations, but offered in-line revenue guidance and earnings of $0.02 per share short. For perspective, that $0.02 per share miss is on a $0.54 per share number for the fourth quarter. That's a 3.7% miss, but it comes from a company that has a track record of edging out Wall Street analyst expectations. The two companies I'm talking about are Starbucks (SBUX) and Skyworks Solutions (SWKS). As I mentioned above, I've been recommending them over the last several months and after recommending subscribers double down on Starbucks last week, I see no reason to jettison the shares after they open significantly higher today. My stance is the same for Skyworks shares, which look like they will give back more than Thursday's 3% rise in the share price. I believe that in a few weeks investors will see this as an opportunity rather than a time to throw in the towel on this RF semiconductor company that counts both Apple (AAPL) and Samsung as key customers. Let's dig a little deeper on both. In some respects, Starbucks is the easier one given last night's earnings beat, favorable forecast and increased dividend. The combination of favorable input costs and better-than-expected traffic and a 1% increase in the average ticket enabled the company to deliver earnings of $0.46 per share, $0.01 above the Wall Street consensus. In terms of its 2013 guidance, management tightened the range to $2.06 to $2.15 per share, up from $2.04 to $2.15 per share. Given the recent cautious view on the American consumer -- 83% of sales comes from the Americas -- that guidance combined with the 24% increase in the dividend likely led to a sigh of relief among nervous shareholders. With a number of growth prospects to kick in in the coming quarters, I continue to see more upside than downside in SBUX shares. Given the dividend increase, I'm bumping the price target on SBUX shares to at least $60 over the coming quarters. Even after today's likely gap up at the open, it leaves ample upside for subscribers. Turning to Skyworks, a beneficiary of the growing migration toward mobile and connected devices, as well as the deployment of 3G and 4G networks, investors are likely to get another bite at the apple today. As we've seen this earnings season, modest misses are treated to sharp share price reactions and even tough SWKS missed modestly with their guidance, it looks like the shares will at least open down better than 5%. While its easy to get overly focused on the short term, remember the longer-term view as well. To me, that's looking at the shift from the desktop to smartphones and tablets, carrier deployments of next generation networks and the growing number of connected devices. That drivers combined with share gains at key customers has Skyworks tracking well on its mid-term goal of delivering $550 million in quarterly revenue with 30% operating margins and annualized earnings of $3 per share. While the near-term earnings growth will be slower in comparison, Skyworks is tracking to deliver compound annual earnings growth of 33% from $0.59 per share in 2008 to $1.85 in 2012. I'd note that was comprised of earnings growth each year and says at least to me that Skyworks is on its way to delivering on that mid-term target. Even if Wall Street analysts cut 2013 earnings forecasts to $2.10 per share from the pre-earnings consensus of $2.30 per share, that would still equate to year-over-year earnings growth of 15% and support a price target of $31 to $32 on SWKS shares. With that kind of upside and favorable end-market drivers, subscribers should use any weakness in today's SWKS share price to jump in for what looks like a good long-term ride.

Starbucks and Skyworks

A tale of two earnings.

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