Skyworks Solutions (SWKS) carries our highest investment recommendation of 5-STARS, or Strong Buy, notes Angelo Zino, and equity analyst with CFRA Research, in the research firm's newsletter, The Outlook.
Skyworks is a wireless semiconductor company that focuses on radio frequency (RF) and complete cellular system solutions for mobile communications applications.
Our Strong Buy reflects our view that fundamentals will improve after a trough in the June quarter, as key mobile customers look to rebuild inventories ahead of a number of product launches this fall. We are growing more optimistic about 5G infrastructure builds as well as opportunities within automotive and the Internet of Things (IoT).
We expect RF providers like SWKS to be among the biggest beneficiaries of content growth in the long term as the 5G ecosystem evolves, as 5G devices will offer significantly more content than 4G devices.
We like SWKS's increasing presence within its broad markets, now one-third of revenue, driven by greater opportunities in 5G infrastructure spending as well as the latest transition to the Wi-Fi 6 standard.
We believe SWKS’s solutions address both base stations and small cells, while the start of volume production of BAW enabled devices will help better position it on the 5G mobile side. We view 5G as the single most important growth driver for the company over the next twelve months.
We expect key customer Apple (AAPL) — which is 47% of FY 18 revenue — to upgrade all its phones in the fall of 2020 to 5G, which we believe will witness an increase of 15%-20% in RF content per device. We note that 5G has now been launched on four continents, with momentum building heading into 2020.
CFRA believes the performance gains in speed, latency and network capacity will help create a much broader ecosystem, where 5G becomes the universal connector, opening up many opportunities for the company.
Applications will go far beyond the smartphone, with 5G driving new use cases in emerging areas like industrial, autonomous vehicles, smart cities and digital health.
We derive our 12-month target of $86 by applying a P/E of 12.9x our CY 20 EPS view of $6.70, near peers, with valuation partly supported by net cash per share of $5.59.
We expect Skyworks to benefit from a rebound in wireless, driven by a resurgence in Apple orders and greater mobile content per device related to the development of 5G. We see significant growth in the company's addressable markets (Internet of Things, streaming media and greater connectivity in emerging markets).
