IT Hardware Stocks

Skyworks Solutions Inc Valuation – March 2019 #SWKS

Company Profile (excerpt from Reuters): Skyworks Solutions Inc., incorporated on June 10, 2002, designs, develops, manufactures and markets semiconductor products, including intellectual property. The Company’s analog semiconductors connect people, places, and things, spanning various unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. The Company’s geographical segments include the United States, Other Americas, China, Taiwan, South Korea, Other Asia-Pacific, Europe, Middle East and Africa. The Company operates throughout the world with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America. The Company is engaged with key original equipment manufacturers (OEM), smartphone providers and baseband reference design partners. The Company’s plants are located in Mexico, Singapore, the United States, Japan, and Rest of world. The Company offers its technology from the smartphones to the factory floor to hospitals and medical providers to the automated home, connected car, and wearables. Skyworks is enabling opportunities with solutions supporting a set of wireless protocols, including cellular long-term evolution (LTE), wireless fidelity (Wi-Fi), Bluetooth, Zigbee and emerging fifth generation (5G) standards.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SWKS – March 2019

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 $14,356,881,784 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.18 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 460.20% Pass
6. Moderate PEmg Ratio PEmg < 20 15.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.63 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 6.18 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 $5.49
MG Growth Estimate 15.00%
MG Value $211.44
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $79.63
MG Value based on 0% Growth $46.68
Market Implied Growth Rate 3.26%
Current Price $82.48
% of Intrinsic Value 39.01%

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 PB ratio. 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 $2.51 in 2015 to an estimated $5.49 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.26% 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 $57.35. The company pays a dividend of $1.34 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 15.02, which was below the industry average of 35.5, 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 $8.49.

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) $8.49
Graham Number $57.35
PEmg 15.02
Current Ratio 6.18
PB Ratio 3.63
Current Dividend $1.34
Dividend Yield 1.62%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,208,500,000
Total Current Liabilities $357,300,000
Long-Term Debt $0
Total Assets $4,738,900,000
Intangible Assets $1,319,900,000
Total Liabilities $700,600,000
Shares Outstanding (Diluted Average) 177,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.33
Sep2018 $5.01
Sep2017 $5.41
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 $0.21
Mar1999 $0.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.49
Sep2018 $4.85
Sep2017 $4.42
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 -$0.78
Sep2003 -$1.00

Recommended Reading:

Other ModernGraham posts about the company

Skyworks Solutions Inc Valuation – June 2018 $SWKS
Skyworks Solutions Inc Valuation – April 2017 $SWKS
21 Best Undervalued Stocks of the Week – 8/27/16
Skyworks Solutions Inc Valuation – August 2016 $SWKS
Skyworks Solutions Inc Stock Valuation – February 2016 $SWKS

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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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