Today we have a speculative idea: take semiconductor component manufacturer Skyworks Solutions (NASDAQ: SWKS), in order to capitalize on the rebound of these stocks after a strong fall.
Growth potential and validity: 16% behind 14 months excluding dividends; 24,5% for two years excluding dividends; 11% per annum during 15 years including dividends.
Why stocks can go up: they fell hard, there is a great demand for the company's products.
How do we act: we take shares now by 153,89 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
Skyworks manufactures sophisticated electronics such as diodes, amplifiers, antenna tuning systems, circulators and insulators, data filters. In short, everything, what is needed for the production of high-tech products.
The company's annual report is full of technical details, but there is no information on business segments.
The end users of Skyworks products are companies: Amazon, Apple, Arris, Bose, Cisco, DJI, Ericsson, Foxconn, Garmin, Thales, General Electric, Fibocom, Google, Honeywell, Itron, Lenovo, LG Electronics, Microsoft, Motorola, Netgear, Northrop Grumman, OPPO, Rockwell Collins, Samsung, Sierra Wireless, Sonos, Technicolor, VIVO, Xiaomi, ZTE, Analog Devices, Broadcom, Cirrus Logic, Murata Manufacturing, NXP Semiconductors, Qorvo и Qualcomm.
Direct deliveries of goods to customers give only 11,14% company's revenue - the rest 88,86% Skyworks revenue comes from resellers-distributors.
Revenue by country and region:
- USA - 63,18%.
- PRC - 19,45%.
- Taiwan - 7,91%.
- South Korea - 5,17%.
- Europe, Middle East and Africa - 3,52%.
- Other regions — 0,77%.
Arguments in favor of the company
Fell down. Since the summer, the company's shares have fallen significantly from 192 to 153,89 $. So we can take stock for a rebound.
Legends of Tomorrow. Demand for the company's products will grow as, how the world economy will increasingly depend on high-tech structures ranging from the Internet of things to robotization of labor. Components for all these sectors and solutions are supplied by Skyworks. And now there is a great demand for her pieces of iron.
So the situation for the company's business will change for the worse., only if the power on the planet is seized by the Luddites and all sophisticated technology is banned, just like in the Dune universe banned "thinking machines". Well, there is still ambiguity with Apple.
Inexpensive. For the company, working in a promising area, Skyworks is inexpensive: P / S she has 5,04, P / E — 17,17. Moreover, it is a successful, profitable business with a huge final margin - under 30% of revenue.
Can buy. Considering all of the above, I would not rule out the possibility of a company being bought by someone bigger amid major mergers and acquisitions in the semiconductor industry. Capitalization at Skyworks is not the largest - $ 25.48 billion, so that its purchase with a decent premium to the current price will be quite affordable for some industrial conglomerate.
Wrecked. The company pays dividends: 2,24 $ per share per year, which is approximately 1,45% per annum. It takes her 242.15 million a year to do this., or 16,13% from her profits for the past 12 Months. It seems to me, what, given the favorable business environment for the company, very high probability, that payments may well double over the next year.
What can get in the way
Concentration. According to the company's annual report, Apple accounts for 59% its revenue as through direct orders, and through deliveries to Apple counterparties. This dependency is a big problem for Skyworks..
Firstly, there is some possibility that, that Apple will abandon Skyworks products, to make the components she needs. Is it so, we'll find out in time, and not soon: the effect of Apple's transition to the production of its own similar components may appear in 3-5 years - and not a fact, that Apple can do it. This is if such a transition will take place at all: may be, Apple decides to buy Skyworks instead, to long, expensive and painful to create your own unit, which will produce the required components.
Secondly, Apple itself is seeking to reduce the share of devices in its revenue in favor of the services sector - and it can simply reduce the volume of orders or simply orders will remain at a certain minimum level. This is just a guess, as with Epic Games' victory over Apple in court, Apple's cunning plan to move into the services sector began to unravel. This fact will slow down the decline in the share of devices in Apple's revenue.. But in any case, it is in the interests of Skyworks and its shareholders to reduce the company's dependence on Apple.
Logistics. The main production facilities of the company are located outside the United States - in Mexico, Japan and Singapore. This, On the one side, a plus: the current increase in the cost of labor in the United States will not greatly affect the company's reporting. But the growing cost of transportation will definitely affect reporting in a bad way.
Accounting. The company has 3.293 billion dollars of debt, of which 658.5 million it needs to repay within a year. Basically, enough money at her disposal: 882,9 million on accounts and 756.2 million debts of counterparties. But still, a large amount of debt will prevent the company from increasing dividends and, maybe, even influence management's decision to cut existing payments, which can lead to a fall in shares.
What's the bottom line?
We take shares now by 153,89 $. And then there are several options:
- wait for growth until 179 $. Here you need to prepare to wait 14 months;
- hold shares until 192 $, who asked for them back in July 2021. Here you will have to wait about two years;
- hold stocks for the next 15 years in sorrow and joy.
It also does not hurt to look at the news section on the company's website., in order to have time to sell shares on the St. Petersburg Exchange, before investors react to news of dividend cuts. Although I doubt, that such news will greatly affect quotes: there is not such a large yield.
And that, ambiguity of the situation with Apple, certainly, will hang over these shares like a sword of Damocles. If Apple's initiative to develop its own production of the necessary components is further developed, then Skyworks shares and its business will be seriously affected.
