On Wednesday, Citi maintained its Sell rating on Skyworks Solutions (NASDAQ:SWKS) but reduced the price target from $83.00 to $72.00.
The adjustment follows Skyworks Solutions' recent earnings report, which showed better-than-expected results for the September quarter. However, the company's guidance for the December quarter was below market expectations, primarily due to a slower recovery in the broad market sector.
Skyworks Solutions, a key supplier to Apple (NASDAQ:AAPL), which accounted for 69% of its sales in the September quarter, anticipates demand from its largest customer to align with previous projections. The company's exposure to the China market is relatively minimal, with approximately 10% of its less than $75 million Android revenue coming from the region in the September quarter.
The growth in the Broad Markets segment has been more moderate than the company expected, and Skyworks faces challenges with excess inventory levels. This situation is contributing to a less favorable outlook for gross margins. In light of these developments, Citi has revised its CY24/25 earnings per share (EPS) estimates for Skyworks Solutions downward by 1% and 19%, respectively.
Citi's revised price target of $72.00 is based on a consistent 12x price-to-earnings (P/E) multiple applied to the firm's adjusted 2025 EPS estimate of approximately $6.00. The Sell rating is maintained due to concerns over weaker broad market performance, lower gross margins, and increased operating expenses affecting the company's financial outlook.
In other recent news, Skyworks Solutions, Inc. reported a successful fourth quarter, with adjusted earnings per share of $1.55, surpassing analyst estimates of $1.52. The company's revenue for the quarter was $1.02 billion, in line with consensus expectations. Skyworks' fourth-quarter revenue grew 13% sequentially, marking a record 40% free cash flow margin for fiscal 2024.
The company also provided an optimistic outlook for the first quarter of fiscal 2025, expecting revenue between $1.05 billion and $1.08 billion and adjusted earnings per share of $1.57 at the midpoint of the revenue range. Despite the EPS guidance falling short of the $1.69 analyst consensus, the revenue forecast was only slightly below the $1.09 billion estimate.
In addition to financial results, Skyworks announced a quarterly dividend of $0.70 per share. In terms of business highlights, the company secured 5G content for premium Android smartphones and expanded Wi-Fi 7 design wins with major networking companies.
These developments suggest a solid position for Skyworks in the evolving tech landscape.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Skyworks Solutions' current financial situation and market position. Despite Citi's bearish outlook, Skyworks maintains a market capitalization of $13.9 billion and trades at a P/E ratio of 17.83, suggesting that investors still see value in the company.
InvestingPro Tips highlight some positive aspects of Skyworks' financial health. The company has raised its dividend for 10 consecutive years and maintained payments for 11 years, demonstrating a commitment to shareholder returns. This is reflected in its current dividend yield of 3.22%, which may be attractive to income-focused investors. Additionally, Skyworks operates with a moderate level of debt, and its liquid assets exceed short-term obligations, indicating a stable financial position.
However, aligning with Citi's concerns, InvestingPro data shows a revenue decline of 11.87% over the last twelve months, with a more pronounced 15.47% drop in the most recent quarter. This supports the analyst's view on the company's growth challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Skyworks Solutions, providing a deeper understanding of the company's prospects and potential risks.
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