Skyworks (SWKS) Up 8.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Skyworks Solutions (SWKS). Shares have added about 8.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Skyworks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Skyworks Beats on Earnings & Revenues in Q4

Skyworks Solutions, Inc. (SWKS) reported fourth-quarter fiscal 2019 non-GAAP earnings of $1.52 per share, beating the Zacks Consensus Estimate by 1.33%. The bottom line compares favorably with management’s guidance of $1.50 per share at mid-point. However, the figure declined 21.6% from the year-ago quarter.

Revenues of $827.4 million outpaced the Zacks Consensus Estimate of $827 million. The figure came within management’s guidance of $815 million to $835 million. However, the top line declined 17.9% from the year-ago quarter. This can be attributed to blacklisting of Huawei, which was the company’s “second largest customer.”

Per management, Mobile contributed 67% to revenues, while the rest 33% came from broad markets.

Deal Wins Remain Noteworthy

During the reported quarter, Skyworks’ Sky5 product portfolio facilitated several 5G launches.

The company’s offerings were selected by Samsung to power its first foldable 5G premium smartphone, and other 4G mobile devices, and LG for its flagship 5G smartphone with dual screens and an OLED display, V50ThinQ.

Moreover, Skyworks’ LTE-based IoT engines have been deployed by Sierra Wireless across transportation platforms and industrial gateways. The company’s offerings have been implemented by Sonos for indoor/outdoor portable smart speakers.

Further, Netgear is leveraging Skyworks’ Wi-Fi 6 connectivity offerings to bolster performance of its Nighthawk and Orbi platforms.

Skyworks shipped its Zigbee solutions with ultra-low power capabilities to a tier-one home security customer.

Skyworks also introduced cognitive chipsets with robust features to enable advanced wireless gaming headsets with ultra-low latency capabilities. In the fiscal fourth quarter, the company initiated volume production of mesh network connectivity modules with high-performance capabilities for Juniper, Amazon and Ruckus.

The company’s fully integrated LTE offerings have been implemented by major automotive manufacturers. Skyworks is also enabling notable infrastructure customers to enhance 5G small cell architecture.

The company is benefiting from strong demand of its wireless communications engines. Its expanding product portfolio, growing clout in the IoT solutions and 5G markets are key catalysts.

Operating Details

Non-GAAP gross margin contracted 90 bps on a year-over-year basis to 50.3%.

Huawei’s addition to entity list negatively impacted gross margin. During the reported quarter, the company had to incur $12.8 million in nonrecurring charge (GAAP), majorly comprising inventory write-downs related to Huawei.

Research & development (R&D) expenses as percentage of revenues expanded 270 bps on a year-over-year basis to 12.9%. Moreover, selling, general & administrative (SG&A) expenses expanded 130 bps from the year-ago quarter to 6.7%.

Consequently, non-GAAP operating margin contracted 360 bps on a year-over-year basis to 34% in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 27, 2019, cash & cash equivalents were $1.08 billion, up from $970.1 million reported in the previous quarter.

Cash generated by operating activities was $417 million, up from $209.3 million in the previous quarter. The company reported free cash flow $333 million, and free cash flow margin of 40%. Capital expenditure was $84.4 million in the reported quarter.

Skyworks repurchased 1.9 million shares for a total of $146.3 million and paid out $75.1 million as dividends.

The company declared a quarterly dividend of 44 cents per share payable on Dec 24, 2019, to shareholders as on Dec 3, 2019.

Fiscal 2019 at a Glance

Skyworks reported revenues of $3.38 billion in fiscal 2019, down 12.6% from fiscal 2018 tally. The Zacks Consensus Estimate was pegged at $3.37 billion.

Non-GAAP earnings of $6.17 per share declined 14.5%. The Zacks Consensus Estimate was pegged at $6.15.

In fiscal 2019, the company returned $931.5 million to shareholders. The company repurchased 8.9 million shares worth $657.6 million and paid out $273.9 million as dividends. Free cash flow came in at around $1 billion with free cash flow margin of 30%.

Guidance

Uncertainty pertaining to Huawei is keeping management cautious. For first-quarter fiscal 2020, revenues are expected to be in the range of $870 million to $890 million. The Zacks Consensus Estimate is pegged at $863.2 million.

Non-GAAP earnings are anticipated to be $1.65 per share at the mid-point. The Zacks Consensus Estimate is pegged at $1.57.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Skyworks has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Skyworks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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