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What's in the Cards for Skyworks (SWKS) in Q3 Earnings?

Skyworks Solutions Inc. SWKS is set to release third-quarter fiscal 2017 results on Jul 20. Notably, the company has a positive record of earnings surprises in the trailing four quarters, with an average surprise of 3.01%.

In the preceding quarter, the company delivered a positive earnings surprise of 2.31%. The company reported second-quarter fiscal 2017 non-GAAP earnings of $1.45 per share, which increased 16% from the year-ago quarter but declined 9.9% on a sequential basis.

Revenues of $851.7 million were up 9.9% year over year and beat the Zacks Consensus Estimate of $840 million. It however decreased 6.8% sequentially but fared better than management’s guidance (down 8% sequentially).

For fiscal third-quarter 2017, revenues are expected to be up 18% year over year to $890 million. Non-GAAP earnings are anticipated to be $1.52 per share, up 23% on a year-over-year basis.

The solid results along with positive guidance has helped the stock outperform the S&P 500 on a year-to-date basis. While the industry gained 11.4%, Skyworks returned 40.1% over the same time frame.



Factors to Consider    

Leveraging on product innovation and adoption, we expect Skyworks to gain further traction in the wireless devices market and retain its favored component provider position with the smartphone original equipment manufacturers (OEMs).

We note that the company is well poised to benefit from growth of the Internet of Things (IoT) market, which is anticipated to expand five-fold, reaching 75 billion units by 2025. The increase is expected to be driven by robust demand for connected home, smart grid, factory automation, wearables and virtual assistants.

Notably, the 5G upgrade cycle is also a major tailwind for the company. Moreover, the company also enriched its product portfolio by launching high efficiency power amplifiers for advanced LTE applications. The demand for highly integrated architecture is increasing with the transition from 4G to 5G technology. These products bode well for the company’s performance.

However, slow growth rate of the smartphone market and higher level of inventories with Chinese smartphone providers are headwinds. Moreover, rumors related to delay in the launch of Apple’s AAPL iPhone 8 is a significant negative for the stock price.

Earnings Whispers

Our proven model does not conclusively show that Skyworks is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Skyworks’ Earnings ESP is -0.70%. This is because the Most Accurate estimate is pegged at $1.41 while the Zacks Consensus Estimate stands at $1.42 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Skyworks carries a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that, as per our model, that have the right combination of elements to post an earnings beat this quarter:

Applied Optoelectronics, Inc. AAOI has an Earnings ESP of +6.1%. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cypress Semiconductor Corporation CY sports a Zacks Rank #1 and has an Earnings ESP of +11.1%.

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