On Thursday, Wolfe Research adjusted its stance on shares of Skyworks Solutions (NASDAQ:SWKS), moving the rating from Outperform to Peer Perform. The downgrade reflects a reassessment of the company's position in the market, particularly in relation to its business with Apple (NASDAQ:AAPL), a major customer.
The decision to downgrade comes after an evaluation of the company's prospects in the handset market. Skyworks Solutions was initially favored to benefit from a rebound in handset demand, inventory normalization, and growth in broad markets. However, the anticipated cyclical improvements were overshadowed by the company's loss of content in the iPhone, which significantly impacts Skyworks given that Apple represented two-thirds of its fiscal year 2023 revenue.
The analyst noted that a potential significant catalyst for Skyworks could be the launch of Apple's internal modem for the iPhone 17 in 2026, which might allow Skyworks to regain lost content. However, the uncertainty surrounding this development, given Apple's current supply agreement with Qualcomm (NASDAQ:QCOM) and previous challenges in developing an internal modem, led to the conclusion that the potential catalyst is too distant and uncertain to maintain an Outperform rating.
The downgrade comes despite the recent pullback in Skyworks Solutions' stock price. The firm's reassessment suggests caution due to the potential impact of content losses with a key customer and the uncertainty of future opportunities to regain that business. The new rating indicates that the firm now views Skyworks Solutions as performing in line with its peers, rather than outperforming the market.
InvestingPro Insights
In light of Wolfe Research's recent rating change for Skyworks Solutions, it is worth considering additional metrics and insights from InvestingPro to better understand the company's financial health and market position. Despite the downgrade, Skyworks Solutions boasts a high shareholder yield and has consistently maintained its dividend payments, increasing them for 10 consecutive years. This commitment reflects a strong free cash flow yield, as noted in one of the InvestingPro Tips. Furthermore, the company operates with a moderate level of debt and its liquid assets exceed short-term obligations, indicating financial stability.
However, it is important to acknowledge that 24 analysts have revised their earnings expectations downwards for the upcoming period, and a sales decline is anticipated in the current year. Yet, the same analysts predict that the company will remain profitable this year, with profitability already demonstrated over the last twelve months.
InvestingPro Data shows Skyworks Solutions with a market capitalization of $14.9 billion and a price-to-earnings (P/E) ratio of 17.33, slightly adjusting to 17.05 for the last twelve months as of Q2 2024. The company’s revenue has seen a decline of 11.41% over the last twelve months, with a gross profit margin of 41.19%. Despite these challenges, the dividend yield as of a recent date stands at a healthy 2.92%, with a dividend growth of 9.68% over the last twelve months.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available for Skyworks Solutions at https://www.investing.com/pro/SWKS. Using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to more valuable financial insights and investment strategies.
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