SWKS Reports

Investment Analysis Clubs Saul’s Investing Discussions
1

Revenue: $810 million, up 38% YoY
Adjusted EPS: $1.34, up 61% YoY

Press release: http://investors.skyworksinc.com/releasedetail.cfm?ReleaseID…

Here is what I show for current numbers. Basic Log graphs are available at www.1ypeg.com/SWKS

                                       SWKS
           Price: $103.12          1YPEG: 0.28          Adjusted P/E: 21          

                        Adjusted Earnings - Historical Stats
+---------------------------------------------------------------------------------+
| Fiscal Q.     Adj. EPS     TTM EPS      YoY TTM Growth      Growth Acceleration |
+---------------------------------------------------------------------------------+
| Q3 2015          $1.34       $4.87               76.4%                    -0.1% |
| Q2 2015          $1.15       $4.36               76.5%                    18.8% |
| Q1 2015          $1.26       $3.83               64.4%                    38.2% |
| Q4 2014          $1.12       $3.24               46.6%                    48.4% |
| Q3 2014          $0.83       $2.76               31.4%                    37.1% |
| Q2 2014          $0.62       $2.47               22.9%                          |
| Q1 2014          $0.67       $2.33                                              |
| Q4 2013          $0.64       $2.21                                              |
| Q3 2013          $0.54       $2.10                                              |
| Q2 2013          $0.48       $2.01                                              |
| Q1 2013          $0.55                                                          |
| Q4 2012          $0.53                                                          |
| Q3 2012          $0.45                                                          |
+---------------------------------------------------------------------------------+

                             Revenue - Historical Stats
+---------------------------------------------------------------------------------+
| Fiscal Q.      Revenue    TTM Revenue     YoY TTM Growth    Growth Acceleration |
+---------------------------------------------------------------------------------+
| Q3 2015          $810M         $3.10B              51.0%                  -0.6% |
| Q2 2015          $762M         $2.87B              51.3%                  26.4% |
| Q1 2015          $806M         $2.59B              40.6%                  46.0% |
| Q4 2014          $718M         $2.29B              27.8%                  53.6% |
| Q3 2014          $587M         $2.05B              18.1%                  46.0% |
| Q2 2014          $481M         $1.90B              12.4%                        |
| Q1 2014          $505M         $1.84B                                           |
| Q4 2013          $477M         $1.79B                                           |
| Q3 2013          $436M         $1.74B                                           |
| Q2 2013          $425M         $1.69B                                           |
| Q1 2013          $454M                                                          |
| Q4 2012          $421M                                                          |
| Q3 2012          $389M                                                          |
+---------------------------------------------------------------------------------+

Neil
Long SWKS

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Thank you for the quick update Neil.

Let me ask: is this the format that you use to track your stocks? I use a spreadsheet and gather a heck of a lot more info than this. However, I would really like to cut back on the time spent collecting data from the SEC forms and Company forms. Would appreciate your thoughts. Rob.

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Guides to Q4 Revenue of $875 Million, Non-GAAP Gross Margin of 50%, and Non-GAAP Diluted EPS of $1.51

Wow!

Even at $125, PE would be 23.76 and 1YPEG 0.38

Still an excellent buy.

Thanks.

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Let me ask: is this the format that you use to track your stocks? I use a spreadsheet and gather a heck of a lot more info than this.

Hey Rob, I’m not quite sure what you’re asking. If you mean do I keep a spreadsheet of a bunch of various financial metrics, then no I don’t. I do pay attention to them when earnings comes out, and I factor them into my big picture of where I think the company is going, but that is largely subjective and informed more by my understanding of the company, management commentary, and answers to questions in the conference calls (I just finished the SWKS call, and it was great btw).

I personally do not try to intensively value or model companies: I think there are just way too many assumptions that go into it, and if one were honest about the reliability/accuracy of those assumptions then they’d end up with a range of values so wide that they wouldn’t be actionable.

So I like simple: as Buffet said, I’d rather be approximately right than precisely wrong. I like Saul’s 1YPEG approach, which focuses on adjusted TTM earnings and growth relative to the current share price, coupled with common sense about how revenue growth and acceleration (or deceleration) of both earnings growth and revenue growth are playing out. These are all known values, rather than guesses, and the assumptions that go into any extrapolation are obvious and limited. And of course the entire exercise just produces data points that help inform a larger picture: I’m not a mechanical trader.

I’m not sure if that answers your question or not :wink:

Neil

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Yes you answered by question. I don’t try to make assumptions either. I just try to get an idea where the company is headed. Thanks Neil.

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Thank you, Neil for the link. You have helped me adapt my investing style (along with the rest of the Saul community). www.1peg.com. What power at the tip of a finger. It’s a great compliment to Kevin’s Google sheet.
~TracyK

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Thanks to you Neil for the great tables on SWKS!
Saul

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Rob,
Your question goes to the very heart of what I find so valuable in adopting Saul’s methods (disclaimer here, I have adopted my impression of Saul’s methods - and that’s what I’ll relate. Read the KB and his and other contributor’s posts if you want to build your own methods based on Saul’s).

A little background . . .

Before I came across this board and studied and learned what I could (this is an incomplete work in process), I found investing to be confusing and mysterious. It was not for lack of data, quite to the contrary, there’s mountains of data. And is if the first order data were not enough, reading the experts and other financial gurus you are deluged with derivative data, extrapolations, interpolations and speculations.

It’s all rather bewildering. I pretty much followed some (but not all) TMF recommendations from Supernova. TMF does not ignore the financial reports and all, but they don’t belabor them either. They pretty much focus on the company and its products/services. They have a long term perspective. They look for companies that are doing something either unique or doing something in a unique way and have a moat to protect it. What TMF does appealed to me based on my own background as an enterprise architect in the IT organization of a Fortune 50 company. It just seemed very reasonable to focus your attention on the business so long as the financial state is not in jeopardy.

But honestly, while my returns were better than average (average being the S&P), they were not spectacular. And beyond the portfolio performance was the nagging discomfort of not really knowing what the underlying decision criteria was. And this was even more true when the need to sell some investments arose. I felt like there was absolutely no way of determining what to sell in that every purchase decision was based on uniformly glowing prospects.

So that was my state of mind regarding investment decision something less than a year ago. Does this sound familiar to you. Either bewildered and befuddled by financial analysis offered by the “experts” (oh, I didn’t mention, I’ve got minors in math, physics and chemistry as well as 30 years in IT, most of it as a techie - I am not intimidated by math and numbers) - there seemed to be precious little consistency about what was the important versus the unimportant. In fact some analysts seemed to relish delving into arcane relationships that as far as I could tell revealed little regarding the prospects for the investment. Or on the other hand, a discussion of the business with the underlying notion that today’s performance is irrelevant because the future’s so bright we can afford to ignore the current ups and downs in the stock’s price even if it is steadily and consistently down.

I’m going to over-simplify, but not by a great deal. I believe that Saul has found the keys (there’s more than one). Here’s what I think - - -

First, not everything important is in the numbers. Pay attention to management, what they say is important. Management pretty much means CEO and CFO, others may participate in a conference call, but mostly it’s these two guys. Listen to or read the transcripts of the conference calls. It doesn’t hurt to review presentations and press releases. How can you trust them to tell the truth? Simple, if you have any reason to not trust them, don’t invest in that company. If there’s one inviolable rule without exception, it’s only invest in companies with trustworthy management. Of course, management is going to try and make things look good even if they don’t. But if their words come off as excuses rather than explanations, it might well be time to move on. Excuses are not too difficult to spot. If this company was impacted by a market force that left their competitors unscathed, you can be reasonably certain it’s an excuse. Things like that

OK - moving on to the numbers. What I’ve learned from Saul seems so obvious, but it is often not well understood. Wall Street rewards earnings. Specifically, earnings growth. If I had to rely on only one number set for making investment decisions it would the quarterly non-GAAP earnings. You are looking for growth, usually YoY and TTM earnings growth.

But this is not the only set of numbers, so look at revenue. You want to make sure the company is making money and the earnings growth is fabricated mostly from debt and equity sales. Speaking of debt, look at the balance sheet. Make sure that debt is not huge. I like to see cash far outweigh debt. A lot of cash means the company can weather a financial crisis. Something bad can happen, you don’t want to see your investment get buried by debt if it does. Free cash flow is important as well. You want to see your company cover the cost of operations with something left over for investments. Finally, you want to look at Saul’s metric, the 1YPEG. A number under 1 will inform you that you are not overpaying for the earnings growth.

That’s pretty much it.

One last thing. Not every decision is going to be a winner. Sometimes Wall Street will ignore earnings growth. Sometimes they will perversely punish a company for no apparent reason. This is not physics. This is statistics. This will get you more right answers more often than anything else I’m aware of. And that’s enough to make good money, 20% - 30% a year.

You also need to develop a sense of when things aren’t working so you don’t keep too much money tied up unproductively. I’m still working on this one. When everything looks like green lights except the stock price just seems to idle - I’m not sure I’ve been at this long enough to make much of judgment on this. But sometimes selling is obvious, earnings aren’t growing or something else fairly obvious is telling you it’s time to phase it out or bail completely. Or maybe it’s doing great and now takes up too large a percentage of your portfolio. Selling is as important as buying

But you asked about how much data to track. The only reason for maintaining a pile of data is to make decisions. I’ve learned it does not take that much information to make good decisions pretty consistently. The rest is just distracting noise.

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Wow BrittleRock, What a great post! Thanks!

Saul

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Hi brittlerock. Thanks for the great write-up.

I’ve been following this board for a year or so… but I don’t read everything. I had asked Neil about his data as it was much, much less than what I track. I gather a lot from the company report, 10Q/10K’s. Too much I’m beginning to believe and looking to cut back some. I had all the data that Neil had posted (and a lot more that I probably don’t need), but have never put it in table form like he did. Mine pretty much just follows along quarterly lines. I’ve been retired for 6 years now and have paid a lot more attention what I’m actually investing in since I retired. One of the many things I learned here is that I had (have) too many stocks. I had around 45 up until a couple years ago. Now I’m down to 32 and have my eye on 2 that will go after they report this quarter if they aren’t improving.

I really like what you said here:
The only reason for maintaining a pile of data is to make decisions. I’ve learned it does not take that much information to make good decisions pretty consistently. The rest is just distracting noise.

… and that’s exactly what I’m working on now. Thanks again for the great write-up. Rob.

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We have discussed the potential concerns over SWKS before and whilst I still hold I am paranoid enough to keep my eyes open for them, however 2 further points came up loud and clear through an article I was reading over on SA which are worth keeping watching out for …

  1. Semiconductor cyclical roll over
  2. China internalization of semiconductor R&D

I am copying the small relevant part of the overall article (very long) and although it concerns other stock mentions it is an interesting macro threat to consider…
Cheers
Ant

19. STM (sell): Linear Tech warns. Is China mobilising?

Linear Tech (NASDAQ:LLTC) is a boring $10bn semi company. Some of their products have 30 year life cycles. It is less cyclical than many of its cyclical peers. So the fact they have guided FQ1 significantly below estimates is noteworthy. FQ4 sales of $379.5m are below street forecasts of $385m. BUT FQ1 guidance is for sales -7% to -12% Q/Q from the lower base. Which equates to sales of $334-353m versus street estimates of $393.7m, the midpoint of which is a huge 13% below estimates.

“We are optimistic that this will be a short cycle and that this is temporary weakness experienced while our customers react to global uncertainties and adjust their inventories to match their cautiousness and end customer demand”.

IMHO there is potentially a greater force at play here that we in the West (by ‘we’ I also mean the semiconductor companies themselves) are not privy to. China is internalizing R&D and the technology process.

China imports 5x more semiconductor chips than domestically produced. They want to change this dynamic. There is now US$170bn funding support from the Chinese NIIF (National Industry Investment Fund) to scale the innovation curve quickly. The funds focus is to accelerate technology investment, especially in the arena of semiconductors and digital technology to wrestle some of the control from across the Taiwanese strait.

So perhaps the positive data points from the likes of ZTE and Huawei versus negative numbers out of Samsung (OTC:SSNLF), Mediatek, Linear, TSMC (NYSE:TSM) - is a function of the Chinese internalizing? So, for example, Huawei have their own RF and baseband. HiSilicon, Shanghai Huali and Spreadtrum are likely taking share away from the non-Chinese players?

Whether the semiconductor cycle downturn is purely cyclical or short term or structural shifts are afoot STMicro (NYSE:STM), which has years of miss-execution and lack of differentiation remains in the headlights. Trading at 30x P/E with the “E” at risk, assumptions of the best GM’s since 2010, with 45% sales exposure to China, and having outperformed US peers and the SOX Index YTD are reasons to sell.

After all, if the semiconductor complex catches a cold, STMicro typically catches pneumonia.

http://seekingalpha.com/article/3358085-the-weekender

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however 2 further points came up loud and clear through an article I was reading over on SA

Ant, I highly recommend reading the latest conference call transcript. I think it will alleviate many of your concerns.

http://seekingalpha.com/article/3352985-skyworks-solutions-s…

Neil

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Quarter	EPS	QoQGr	TTMEPS	TTMGr	Hi	Lo	Close	P/E	P/E Hi	P/E Lo	1YrPeg
Mar-12	0.42				$29.01	$16.48	$27.87				
Jun-12	0.45				$29.09	$23.11	$26.54				
Sep-12	0.53				$31.44	$22.36	$23.98				
Dec-12	0.55		1.95		$24.45	$19.21	$19.82	10.2	12.5	9.9	
Mar-13	0.48	14.3%	2.01		$25.10	$20.25	$21.59	10.7	12.5	10.1	
Jun-13	0.54	20.0%	2.10		$24.58	$19.57	$21.42	10.2	11.7	9.3	
Sep-13	0.64	20.8%	2.21		$26.46	$20.95	$24.47	11.1	12.0	9.5	
Dec-13	0.67	21.8%	2.33	19.5%	$28.64	$23.27	$28.29	12.1	12.3	10.0	0.62
Mar-14	0.62	29.2%	2.47	22.9%	$39.34	$27.20	$37.32	15.1	15.9	11.0	0.66
Jun-14	0.83	53.7%	2.76	31.4%	$49.10	$34.30	$46.29	16.8	17.8	12.4	0.53
Sep-14	1.12	75.0%	3.24	46.6%	$59.25	$45.50	$58.64	18.1	18.3	14.0	0.39
Dec-14	1.26	88.1%	3.83	64.4%	$74.97	$44.06	$73.23	19.1	19.6	**11.5**	0.30
Mar-15	1.15	85.5%	4.36	76.5%	$102.77	$68.71	$99.57	22.8	**23.6**	15.8	0.30
Jun-15	1.34	61.4%	4.87	76.4%	$112.88	$90.68	$104.10	21.4	23.2	18.6	0.28
============================================================================================
NextQ	1.51	34.8%	5.26	62.3%	$123.98	**$60.51**	$95.67	18.2			0.29
NextQ+1	1.58	25.4%	5.58	45.7%	$131.54	$64.20	$95.67	17.1			0.38
NextQ+2	1.44	25.4%	5.87	34.7%	$138.43	$67.56	$95.67	16.3			0.47
NextQ+3	1.68	25.4%	6.21	27.6%	$146.47	$71.48	$95.67	15.4			0.56
NextQ+4	1.89	25.4%	6.60	25.4%	$155.52	$75.90	$95.67	14.5			0.57
NextQ+5	1.98	25.4%	7.00	25.4%	**$165.00**	$80.53	$95.67	13.7			0.54

Just a few more thoughts on what happens next with Skyworks…

After having an excellent quarter, the price of the stock actually fell. It would be good to know why this happened. But it’s virtually impossible to determine this from the conference call transcript.

And we’re guiding fourth quarter revenue to be $875 million with gross margins of 50% and $1.51 of EPS.

So guidance went up, and they expect gross margins to hit 50% next quarter on the back of increased margins on incremental revenue (not new product revenue, but incremental revenue on everything).

So when you’re modeling as you go forward, quarter-to-quarter, you start with the guide that we gave. That’s the new baseline. And then any incremental revenue that you add to that, you drop through at 55%.

They also announced that they are increasing the quarterly dividend from $0.13 per share to $0.26 per share and expect to continue to accelerate … progress towards our $7 EPS target in calendar year 2016.

So if they hit the $7 EPS target in the December quarter, what do the P/E and 1YrPeg ratios look like if the price of the stock doesn’t change?

The table above shows these numbers.

Skyworks highlighted expansion of business with existing customers (Expanded participation in Xiaomi’s smartphone portfolio) and diversification into new businesses (the transcript is littered with references to new business).

If the numbers look so great, why did the stock price go down after the earnings release?

There may be a few reasons for this. It could be Qorvo’s weak guidance, Apple’s disappointing sales of iPhones (I think it was 47.5MM instead of 50MM) or an expected deceleration in earnings growth expected to get the $7.00 TTM by the end of next year (implies only about 25% QoQ for the Dec '15 through Dec '16 quarters).

If by the end of 2016, SWKS hits its recent high P/E and grows to the $7.00 TTM EPS, the stock will hit about $165 (and the value point will significantly go down when compared to the resulting 1YrPeg that will close in on 1 (not .28 as it is today or .54 if the stock price doesn’t change from now to the end of 2016). And if the P/E goes down to 11.5 (it hit this last year on the dip), the stock price could still go down to about $80.

There you have it. Based upon reasonable historical ranges, there is some considerable (limited) upside (downside), and it looks even better if they continue to improve the business.

Hopefully, this helps you. It helps me to make a decision to shift some more money into Skyworks.

DJ

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Thanks DJ, it helps me. I added a little more early this morning and then found your post, so it was nice to have a conformation of me decision.
Mike

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If the numbers look so great, why did the stock price go down after the earnings release?

There may be a few reasons for this. It could be Qorvo’s weak guidance, Apple’s disappointing sales of iPhones (I think it was 47.5MM instead of 50MM) or an expected deceleration in earnings growth expected to get the $7.00 TTM by the end of next year (implies only about 25% QoQ for the Dec '15 through Dec '16 quarters).

We tend to always look for a reason why the stock went up or down or why the market went up or down. Causation is really hard to prove. I think the best we can usually do is correlation. In the universe of buyers and seller of SWKS shares, there are many reasons why someone might buy or sell the stock. The simple answer to the original questions is that the dynamic between the aggregate buyers and sellers of SWKS causes the price to move up or down depending on their willingness to buy or sell shares at given prices. To put this simply, the net effect lately has been that existing and prospective SWKS investors (in aggregate) have been tending to move our of SWKS into another investment, into cash, or into consuming (spending) the stored wealth of the SWKS shares.

My guess is that perhaps there has been a net decrease in the institutional ownership stake in SWKS. Perhaps there are groups of investors who are reducing their holdings in semiconductor companies as a whole and SWKS being among them is also on the sell list. Of course, I can’t know if this is actually happening or not. What I do know is that I am currently convinced that SWKS is a good investment for me and I believe that the growth is continuing just fine. I also believe that the shares are very attractively priced. Therefore, I don’t pay much attention to other people’s opinions with which I don’t agree.

I am of the opinion that SWKS is doing just fine, and I am holding onto my very large stake. I am already near the top of my allocation limit but am considering pushing it to the limit.

Chris

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Very much agree Chris. SWKS is a great company temporarily caught in a receding tide. I think a lot of reason for that is the most of Wall st does not realize they are not like every other chip company out there.

I will admit I was surprised by the post ER decline, and I took the opportunity to add some and may add more.

After the run it has had, I would not be surprised to see it hang in a range and consolidate for a short time. From a technical perspective it looks like the $92 level has a lot of buyers and I would expect it to stay above there and will use that level to buy more shares if it continues to dip.

Once the tide comes back into the semiconductor space, I think SWKS will be a boat that rises faster than most. While disappointing in the short term, this pullback is a long term gift.

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My guess is that perhaps there has been a net decrease in the institutional ownership stake in SWKS. Perhaps there are groups of investors who are reducing their holdings in semiconductor companies as a whole and SWKS being among them is also on the sell list. Of course, I can’t know if this is actually happening or not. What I do know is that I am currently convinced that SWKS is a good investment for me and I believe that the growth is continuing just fine. I also believe that the shares are very attractively priced. Therefore, I don’t pay much attention to other people’s opinions with which I don’t agree.

Hi Chris, I must say that I agree (although I certainly could be wrong). I’d guess that a Mutual Fund, for example, with 200 companies in its portfolio, can’t listen to all the conference calls, or spend much time evaluating individual companies. They have a meeting and decide: “China’s having trouble. We should decrease our exposure to the chip sector. Let’s sell half of each of our chip positions.”

That’s the way I imagine it at least.

Saul

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please go to Post #9939.

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Chris,

My guess is that perhaps there has been a net decrease in the institutional ownership stake in SWKS.

According to IBD, the ‘Accumulation/Distribution’ rating for SWKS is a “E”, the lowest/worst rating. In fact, it is in the 16th percentile for that rating. That metric is driven by price/volume measures, and for SWRKS over the past couple of weeks, the price is declining on high volume trading days.

That is usually a clue that the Big Boys are selling.

I am not changing my holding – yet. But continued high-volume selling would signal a review.

Tiptree, Fool One guide, long SWRKS

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Fools,

The adjusted P/E is about 18 right now. Assuming that it does not change and they hit their expected $7.00 trailing EPS, we should see a share price of $1.26, which reflects a 40%+ return.

Here is a link to the updated data spreadsheet for Skyworks.

https://docs.google.com/spreadsheets/d/1JMUXTw3iY5AskMjGFByG…

If you find anything useful that could be added, please feel free to add it.

DJ

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Hi Everybody,
$1.26 would certainly be a tragedy. I meant to write $126.
DJ

1 Like