Investidea: Skyworks Solutions, because the chips are to the rescue

Инвестидея: Skyworks Solutions, потому что чипы спешат на помощь

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% за два года без учета дивидендов; 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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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, но информации по сегментам бизнеса там нет.

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.

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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:

  1. USA - 63,18%.
  2. PRC - 19,45%.
  3. Taiwan - 7,91%.
  4. South Korea - 5,17%.
  5. Europe, Middle East and Africa - 3,52%.
  6. Other regions — 0,77%.

Инвестидея: Skyworks Solutions, потому что чипы спешат на помощь

Arguments in favor of the company

Fell down. С лета акции компании ощутимо подешевели с 192 до 153,89 $. Так что мы можем взять акции в расчете на отскок.

Legends of Tomorrow. Спрос на продукцию компании будет расти по мере того, 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". Ну и еще есть неясность с 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, прибыльный бизнес с огромной итоговой маржой — под 30% от выручки.

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, так и через поставки контрагентам Apple. Такая зависимость — это большая проблема для Skyworks.

Firstly, there is some possibility that, что Apple откажется от продукции Skyworks, to make the components she needs. Is it so, we'll find out in time, причем не скоро: эффект от перехода Apple на производство собственных аналогичных компонентов может проявиться через 3—5 лет — и не факт, что у Apple получится это сделать. 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.

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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. Основные производственные мощности у компании расположены за пределами США — в Мексике, Японии и Сингапуре. 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:

  1. wait for growth until 179 $. Here you need to prepare to wait 14 months;
  2. hold shares until 192 $, которые за них просили еще в июле 2021. Here you will have to wait about two years;
  3. hold stocks for the next 15 years in sorrow and joy.

Также не помешает поглядывать на раздел новостей на сайте компании, in order to have time to sell shares on the St. Petersburg Exchange, before investors react to news of dividend cuts. Although I doubt, что такие новости сильно повлияют на котировки: 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. Если инициатива Apple по развитию собственного производства нужных компонентов получит дальнейшее развитие, then Skyworks shares and its business will be seriously affected.

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