Year to date, Skyworks Solutions (SWKS) is down 1.1%. With the stock declining five straight points on news of disappointing iPhone 7 sales and set to report results tonight, can Skyworks turn it around and go skyward?
Back in June, I thought Skyworks would head upward because of the pending iPhone 7 launch. Since then, the stock is has risen 15%, but I still think we are in the early innings and the shares can go higher.
Skyworks reports its fourth-quarter fiscal 2016 earnings after the market close Thursday. The consensus is looking for revenue of $831.3 million, down 5.6% year to year, and earnings per share of $1.43. However, I believe investors will look through this quarter and toward next year, especially after Qualcomm's (QCOM) blowout report last night.
Dividend Stock Advisor holding Qualcomm reported fourth-quarter fiscal 2016 EPS of $1.28, $0.15 better than expected. Revenue rose 13%, year to year, to $6.17 billion and vs. the $5.86 billion consensus. The company said it shipped 211 million mobile chipsets in the quarter. Analysts were looking for shipments of 203 million units.
Skyworks derives approximately 75% of its revenue from mobile handsets and about 40% of revenue directly from Apple (AAPL) .
Two weeks ago investors were disappointed with Apple's results. They were concerned about iPhone unit growth and lower gross margins. But after listening to comments by management, it seems Apple is capacity constrained. (Apple is a holding in Jim Cramer charitable trust, Action Alerts PLUS.)
By some estimates, Apple had two million fewer units in the channel because of the timing of the product announcement. But that should clear up in the December and March quarters as sales normalize. Last quarter, Apple sold 45.5 million units, down 5%, but iPhone 7 sales will pick up into the New Year.
Analysts expect Apple to sell more than 230 million iPhones in fiscal year 2017 (ends September) and more than 240 million units in 2018, before sales begin to slow.
I believe strong iPhone sales will pull Skyworks shares higher. Fiscal 2017 revenue should increase at least 8% (and probably higher, based on Qualcomm's strong growth). And with just 8% revenue growth, EPS should rise 10-12%, to $6.13.
Semiconductor stocks usually trade between 12x and 16x forward earnings estimates. Right now, Skyworks is trading at around 12x, so it wouldn't be out of the ordinary for the stock to trade up to 15-16x as investors get more confident regarding iPhone 7 sales.
If I'm right, Skyworks is poised for further elevation.