Analysts See Blue Sky For Skyworks In 2017

While Skyworks Solutions Inc SWKS has demonstrated high growth in recent years, it faces a content increase opportunity in handsets, Wells Fargo’s David Wong said in a report. He added that the company has demonstrated the ability to drive gross margin expansion, has strong financials and has diversified into higher growth and higher margin markets.

Wong initiated coverage of Skyworks with an Outperform rating and a valuation range of $100-$118.

Investment Positives

The analyst elaborated on the investment positives for Skyworks:

Demonstrated high growth in recent years and content increase opportunity in handsets

The company’s total sales grew 14 percent in FY2013, 28 percent in FY2014 and 42 percent in FY2015. Growth in FY2016 slumped to merely 1 percent due to Apple Inc AAPL iPhone supply chain inventory correction. \

“We estimate that Skyworks’ dollar content within iPhone may have risen from below $3/phone in FY10 to close to $6/phone in FY16,” Wong wrote.

Related Link: Will Skyworks Guidance Quell Fears Around Apple's iPhone Build Slowdown?

Diversification into higher growth and higher margin markets

The company’s Broad Markets sales have surged from $240 million in FY11 to more than $800 million in FY2016. These sales include IoT [Internet of Things] and communications infrastructure and have a gross margin of more than 50 percent, the analyst noted.

Ability to drive gross margin expansion

The company has improved its gross margins from around 40 percent in 2009 to 51 percent in the December 2016 quarter.

Strong financials

Skyworks has more than $1 billion in cash and no debt on its balance sheet. The company’s annualized dividend yield is currently ~1.2 percent.

“Our understanding is management has a long-term target of 50% of free cash flow as an appropriate balance between internal investment for growth initiatives and shareholder returns (dividend and share repurchases),” Wong stated.