On Thursday, Citi maintained its Sell rating on shares of Skyworks Solutions (NASDAQ:SWKS) but reduced the price target from $85.00 to $83.00. The semiconductor company experienced a decline in its stock value by 13% after the market closed on Wednesday, following the release of its March quarter earnings and a forecast for the June quarter that fell short of analyst expectations.
Skyworks, which counts Apple (NASDAQ:AAPL) as a major customer, reported that sales to the tech giant comprised 68% of its total revenue for the March quarter. This represented a sequential quarterly decrease of 19% and a year-over-year decline of 3%. The company anticipates mobile demand to be lower than typical seasonal trends for the upcoming quarter, projecting a decline of 20-25% due to soft demand and surplus channel inventory.
Citi highlighted concerns about the competitive landscape in China and the risks associated with Skyworks' reliance on Apple, which is expected to contribute to a roughly 10% loss in dollar content in the next-generation iPhone in the second half of 2024. The firm's analysts believe that a strategic shift, potentially through significant mergers and acquisitions, could alleviate the heavy reliance on mobile sales, which currently exceed 70% of Skyworks' business.
In response to these challenges, Citi has revised its earnings per share (EPS) estimates for Skyworks downward by 18% for the calendar year 2024 and by 19% for 2025. The new price target is based on a consistent 12 times price-to-earnings (P/E) ratio applied to the firm's adjusted EPS forecast for 2025.
InvestingPro Insights
Amid the challenges facing Skyworks Solutions, highlighted by Citi's analysis, InvestingPro data and tips provide a broader perspective on the company's financial health and market position. With a market capitalization of $14.49 billion and a P/E ratio standing at 17.43, Skyworks Solutions presents a valuation that may capture investor interest, especially considering the company's strong history of dividend payments, now in its 11th consecutive year, signaling a commitment to returning value to shareholders.
The company's dividend yield stands at an attractive 3.01%, and despite the anticipated sales decline for the current year, Skyworks Solutions has been profitable over the last twelve months. This profitability, coupled with a valuation that implies a strong free cash flow yield, suggests underlying financial resilience. Analysts have revised their earnings downwards for the upcoming period, reflecting the near-term headwinds that Skyworks is facing, including the competitive landscape and reliance on key customers like Apple.
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