Skyworks Solutions (NASDAQ: SWKS) is an undercovered and underappreciated asset working in the semiconductor industry. The company does not make or market semiconductors but manufactures a wide range of semiconductor-based components for business and industry of all verticals. In this light, it is well-positioned as a middle-man between the semiconductor industry and the rest of the manufacturing world and the results prove it. The company is not only growing but guiding strongly and increasing its dividend which should help support prices over the long term.
Skyworks Leverages A Diversified Business Model
Skyworks put in a very solid FQ3 that was driven by the company’s diversified approach and demand across end markets. The company reported $1.23 billion in net revenue for a gain of 10.8% over last year which matched the analyst's consensus. The gains were driven by notable wins in the Wi-Fi and 5G arenas and were compounded by strength in the EV market as well.
“Importantly, our increasing content reach in automotive, data center, infrastructure, and other diversified sectors is generating solid momentum going into the second half of calendar 2022. Leveraging a wide array of premium products, our engagements with the industry’s most impactful customers are resulting in unparalleled connectivity spanning an ever-expanding set of applications and markets,” said Liam K. Griffin, president and CEO.
Moving down to the margin, the company reported a contraction in the margin that was compounded by an increase in R&D and SG&A expenses that left the GAAP and adjusted earnings down on a YOY basis. The takeaway, however, is that margin came in stronger than expected and delivered $2.44 in GAAP earnings which are $0.09 better than expected. While the margin decline is a worry, the cash flow remains strong and the guidance is favorable so there is no worry about the dividend. As far as the guidance goes, the company is expecting a double-digit sequential increase in both revenue and earnings that would put the adjusted EPS at over $2.90 or up 12% YOY.
Skyworks Solutions Offers A Deep Discount For Income Investors
Income investors looking to get exposure to tech and semiconductors could do far worse than Skyworks Solutions. While there are stocks in the semiconductor application universe trading at similar discounts like Micron Technologies (NASDAQ: MU), or those that pay dividends like Marvell (NASDAQ: MRVL), the cheap stocks don’t have the yield (if any yield at all) and the ones that do have yield don’t offer the same value (and often have lower yields). Skyworks Solutions trades at roughly 10X its earnings which is high compared to Micron Technologies but Micron pays less than 1% and, while high-yielding Broadcom (NASDAQ: AVGO) pays a near-3.0% yield it is trading at a 50% premium and the payment comes with far less safety. The takeaway is that Skyworks is among the best value to yield combinations in the semiconductor industry.
The Technical Outlook: Skyworks Solutions Hit Bottom
The price action in Skyworks Solutions hit a bottom prior to the Q3 release and has rebounded in the time since. Price action is up nearly 30% in that time and could easily go higher if the market follows through on the signal. The next hurdle for the price will be near $117.50 and the 150-day moving average. If that level can be broken a move up to the $140 to $150 range is expected. If not, this stock may be range bound at the current levels until there is more clarity on 2023 economic activity.