(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)
Skyworks Solutions Inc. (SWKS) shares could be set to rise despite the negative commentary surrounding Apple Inc. (AAPL) stemming from weak demand of the iPhone X. Skyworks stock has been solid technically based on the charts, while the fundamentals are relatively cheap when compared to some of its peers. This could lead the shares to rise by about 13 percent, rebounding to $112.
When the company reports its 1Q earnings on February 5, analysts expect the company to report that fiscal first-quarter revenue rose by about 15 percent, to $1.051 billion, while earnings grew by nearly 19 percent to $1.91 versus last year. Currently, the market is looking for Skyworks to see revenue growth of 10 percent in fiscal year 2018, and earnings growth of about 11 percent.
The technical chart shows a stock that has found solid support around $94, or three sharp pullbacks, over the course of the past 52 weeks. Impressively, the stock has been able to rise off that support, and could be set to increase back to resistance around $112.
Skyworks' relative strength index has reversed course, and started trending higher since bottoming in mid-December. This could be another positive indication for the stock going forward. Should SWKS shares rise above $100, a move on toward $112 seems likely.
But the speculation may have opened the market's eyes to just how cheap Skyworks shares are by comparison on a fundamental basis due to the negative Apple commentary. (See more: iPhone X Orders Weakening: JPMorgan.)
Should Skyworks first-quarter earnings and guidance be in line with current expectations, this suggests the stock is deeply undervalued compared to a company like Maxim Integrated Products, based on historical trends.
Maxim has always traded with a higher one-year forward PE because of Skyworks' dependence on Apple. The premium spread has gotten to its widest point recently, in a sign that either Skyworks shares have become undervalued or Maxim's have become overvalued.
Earnings for Skyworks, which will be released on February 5, will be critical. Should expectations or the outlook for 2018 sputter, it could prove problematic and be the reason behind the company's cheap valuation, while support at $94 will likely be tested once again.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.