IT Hardware Stocks

Skyworks Solutions Inc Valuation – April 2017 $SWKS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Skyworks Solutions Inc (SWKS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Skyworks Solutions Inc. designs, develops, manufactures and markets semiconductor products, including intellectual property. The Company’s analog semiconductors are connecting people, places, and things, spanning a number of new and unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. Its geographical segments include the United States, Other Americas, China, Taiwan, South Korea, Other Asia-Pacific, Europe, Middle East and Africa. It operates throughout the world with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America. It is engaged with key original equipment manufacturers (OEM), smartphone providers and baseband reference design partners. Its product portfolio consists of various solutions, including amplifiers, attenuators, detectors, diodes, filters, front-end modules, hybrid, mixers, switches, and modulators.

SWKS Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SWKS – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,758,044,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 7.25 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 670.85% Pass
6. Moderate PEmg Ratio PEmg < 20 21.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.99 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 7.25 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.64
MG Growth Estimate 15.00%
MG Value $178.46
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $67.21
MG Value based on 0% Growth $39.40
Market Implied Growth Rate 6.28%
Current Price $97.59
% of Intrinsic Value 54.68%

Skyworks Solutions Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.14 in 2013 to an estimated $4.64 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.28% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Skyworks Solutions Inc revealed the company was trading above its Graham Number of $51.83. The company pays a dividend of $1.08 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 21.05, which was below the industry average of 41.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $9.57.

Skyworks Solutions Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $9.57
Graham Number $51.83
PEmg 21.05
Current Ratio 7.25
PB Ratio 4.99
Current Dividend $1.08
Dividend Yield 1.11%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $2,198,500,000
Total Current Liabilities $303,400,000
Long-Term Debt $0
Total Assets $4,065,700,000
Intangible Assets $955,300,000
Total Liabilities $405,400,000
Shares Outstanding (Diluted Average) 187,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.06
Sep2016 $5.18
Sep2015 $4.10
Sep2014 $2.38
Sep2013 $1.45
Sep2012 $1.05
Sep2011 $1.19
Sep2010 $0.75
Sep2009 $0.56
Sep2008 $0.68
Sep2007 $0.36
Sep2006 -$0.55
Sep2005 $0.16
Sep2004 $0.15
Sep2003 -$3.24
Mar2002 -$0.42
Mar2001 $0.75
Mar2000 $0.42
Mar1999 $0.54
Mar1998 $0.33
Mar1997 -$0.53

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.64
Sep2016 $3.56
Sep2015 $2.51
Sep2014 $1.60
Sep2013 $1.14
Sep2012 $0.94
Sep2011 $0.82
Sep2010 $0.55
Sep2009 $0.38
Sep2008 $0.24
Sep2007 -$0.19
Sep2006 -$0.57
Sep2005 -$0.56
Sep2004 -$0.77
Sep2003 -$0.95
Mar2002 $0.24
Mar2001 $0.48

Recommended Reading:

Other ModernGraham posts about the company

Skyworks Solutions Inc Stock Valuation – February 2016 $SWKS
10 Best Stocks For Value Investors This Week – 10/31/15
Skyworks Solutions Inc. Valuation – October 2015 Update $SWKS
The Best Stocks of the IT Hardware Industry – September 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15

Other ModernGraham posts about related companies

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IT Hardware Industry Review – March 2017
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Fortive Corp Valuation – Initial Coverage $FTV
Analog Devices Inc Valuation – February 2017 $ADI
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Amphenol Corp Valuation – February 2017 $APH

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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