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Skyworks, Beyond Meat, Sony, Microsoft and Capcom highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·12 min read
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For Immediate Release

Chicago, IL – March 23, 2021 – Zacks Equity Research Shares of Skyworks Solutions, Inc. SWKS as the Bull of the Day, Beyond Meat, Inc. BYND as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Sony Corporation SNE, Microsoft Corporation MSFT and Capcom Co., Ltd. CCOEY.

Here is a synopsis of all five stocks:

Bull of the Day:

The 4th Industrial Revolution is upon us, and connectivity is becoming a central focus as 5G technology rolls out. Skyworks and its growing portfolio of digitally connected chips are essential components to the 'smart' world we live in. Business spending is beginning to pick up and their focus is going to be on building out their digital infrastructure which will provide a tailwind for this well-positioned chip giant.

Today almost everything we interact with is digitally linked to the internet, also known as the internet of things (IoT) ecosystem. 4G networks weren't built to handle the volume of data or required speed of this rapidly expanding ecosystem of connected devices. The 5G revolution is an essential transition to allow our increasingly 'smart' world to function in real-time.  

Skyworks' cutting-edge chip technology is critical for the ushering out of 5G devices, and this past quarterly report really illustrated the vitality of this enterprise. The company's vision of Connecting Everyone and Everything, All the Time is coming to fruition, and analysts are getting excited. Analysts have been significantly raising their EPS estimates across every time horizon, propelling SWKS to a Zacks Rank #1 (Strong Buy).

Latest Earnings Report (1/28)

Skyworks had an exceptionally strong earnings report to round out what will go down as one of the craziest years in history. The business illustrated a blowout quarter, with an enormous top & bottom-line beat in addition to increased forward guidance that had analysts racing to boost their price targets.

The innovation-driven enterprise reported record revenues of over $1.5 billion in its December quarter, up 69% from the prior year. Skyworks has never had a more profitable quarter with $516 million on the bottom-line, illustrating nearly 100% expansion compared to last year's December quarter results.

The new 5G iPhone release, along with other leading 5G devices, have been a sizable tailwind for the business. Skyworks' Sky5 chip portfolio is accelerating with next-generation 5G, "supporting the next wave of 5G launches at Samsung, Oppo, Vivo, Xiaomi and other Tier-1 players" (aka Apple, its #1 customer), according to the quarterly release.

In its earnings call, President & CEO Liam Griffin said that the company was dedicated to investing more in its own fabs (aka internal manufacturing) to keep up with the swelling chip demand. The company ended the year with $1 billion in cash & equivalents, no debt, and an over $1 billion run rate in post-dividend free-cash-flows giving the enterprise enormous financial flexibility for internal investment (which the business has continuously done), and synergy driving acquisitions.

What's Next For SWKS

SWKS shares surged to fresh highs following this unbelievable quarter, with the stock trading in a range between roughly $170 - $190 since this report was released. The markets are still digesting the earnings news, and the implications of this shortening recovery timeline, but it would appear that SWKS is preparing to break out.

Skyworks is spending the money to continue growing its footprint in fabrication, so the business doesn't have to rely too heavily on external manufacturing. The company has been investing heavily in internal development of 5G chips for the IoT explosion that has already begun and SWKS is just beginning to see the benefits.

SWKS is expected to see a 68% EPS improvement in its fiscal 2021 (ending September 30th), on top of a 47% increase in revenues.

SWKS remains at a relative discount despite its nearly 20% price surge since its earnings report at the end of January. The stock is trading at a price to 12-month forward earnings of 16.7x compared to the tech sector's 26.8x.

Final Thoughts

I am very bullish on SWKS positioning in the marketplace, with a nearly 25% market share in RF chips for smartphones. The company is well-positioned for the commencing IoT & 5G revolution. 11 out of 19 analysts are calling this stock a buy today with no sell ratings. Its most optimistic price target represents a 35% upside, which I believe is very attainable after that stellar earnings report at the end of January.

Bear of the Day:

Beyond Meat has been a meatless miracle with shares having run far past this 'trendy' stock's true risk-weighted value. Sell-side analysts are beginning to rein in their expectations as the market euphoria surrounding this cliché new plant-based protein alternative has pushed BYND into a Zacks Rank #5 (Strong Sell).

Why I Don't Like The Stock 

First and foremost, this small alt-protein meat enterprise will not just waltz into the consumer-packaged-goods (CPG) industry and completely monopolize this niche space. The big meat industry players like Tyson Foods, JBS Holdings, Cargill Meat, and Perdue are all making moves in the plant-based meat segment. These food giants' proven distribution and supply chain operations, along with longstanding corporate relationships, will be leveraged to outplay this start-up.

Granted, Beyond Meat has secured some lucrative partnerships with global fast-food giants like McDonald's and Yum! Brands that have justified some of BYND's upward move. However, I still believe that BYND is overextended.

I am worried that this a fad among younger consumers (which is where the primary demand is originating), and the fact that this new plant-based meat isn't actually healthier than real meat may slow its roll. Beyond Meat's products are all highly processed, and some nutritionists are saying that this faux-meat may actually be less healthy than traditional options.

BYND has appreciated over 450% from its IPO in May of 2019 (200% from its first publicly traded price) but has traded sideways for more than 10 months. The company is trading at a double-digit P/S multiple. Its deeper slips into a bottom-line and cash-flow deficit are concerning for a company with such an uncertain future.

The stock currently has 6 sell ratings and only 2 buy ratings, with its current share price trading at a 20% premium to its average target price.

Final Thoughts

I'm not going to be putting on a position in BYND one way or the other because of the stock's inherent volatility. I don't believe in this 'progressive' business model's story and think there are too many risks at its current valuations.

Even if plant-based meat is not just a fad but a sustained and growing business, I think Beyond Meat will be hard-pressed to compete with the capital and economies of scale of the meat industry's longstanding leaders. To put things into perspective, Tyson Foods is estimated to generate 72 times as much revenue as Beyond Meat in 2021 and robust profitability that dwarfs even BYND's sales (0 expenses taken out).

TSN is less than 3 times the market value of BYND in an industry it has operated in for decades. The risk/reward ratio in BYND shares is much too high for me to consider the stock as investable.

Additional content:

Videogame Sales Jump: 3 Solid Stocks to Buy

The U.S. videogame industry started this year on a high and has enjoyed a solid run. People continue to spend more on console games and hardware as the pandemic has left them with fewer choices of entertainment.

According to the latest data from the NPD Group, spending on videogames jumped once again in February, marking one year of continued gains amid pandemic-related disruptions. And given that the situation has remained more or less the same for a year, the videogame industry is likely to make further gains.

Spending on Videogames Jumps in February

According to the latest report from the NPD group, spending on videogames in the United States jumped 35% in February on a year-over-year basis to $4.6 billion. Hardware sales grew the most, surging 121% to $406 million.

Software sales that include spending on gaming content like console, mobile, PC, cloud and subscription services grew 30% to $4 billion. Total spending on gaming accessories jumped 41% to $195 million. So far, the first two months of 2021 have seen total spending on games growing 39% on a year-over-year basis to $9.3 billion.

Among all the categories, Nintendo's Switch was the best seller both in terms of consoles and dollar sales, making it the best February for any console game since 2009. Sony's PlayStation 5 emerged as the second-best performer in terms of consoles sold.

Videogame Industry on a High

According to an earlier report from NPD Group, videogame sales hit $56.9 billion in 2020 in the United States, soaring 27% from the previous year. This is also the highest sales ever generated.

The pandemic saw millions of people stuck in their homes with not too many options for entertainment, as parks and theatres remained closed. This saw them spending more on consoles and software, thus making it a great 2020 for the videogame industry.

One year down the line, despite three COVID-19 vaccines rolled out, the situation hasn't changed much as new cases are still being reported and fears continue to escalate. According to Newzoo, global videogame revenues could reach $189.3 billion in 2021, taking the total games to 2.8 billion worldwide. Thus 2021 could also turn out be a fruitful year for the gaming industry.

Our Choices

The videogame industry has started 2021 on a high note, given that the pandemic is still keeping people indoors and is likely to result in surging sales in the coming days. This thus makes it an opportune time to invest in gaming stocks that are sure to gain in the near term.

Microsoft is one of the leading videogame makers and manufactures hardware and accessories. The company has been expanding its footprint in the industry and recently announced that it will be acquiring videogame maker ZeniMax Media.

The company's expected earnings growth rate for the current year is 28%. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. Microsoft carries a Zacks Rank #2 (Buy).

Sony designs, manufactures and sells several consumer and industrial electronic equipment. The company's product roster comprises audio and video equipment, televisions, displays, semiconductors, electronic components, gaming consoles, computers and computer peripherals and telecommunication equipment. 

The company's expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 34.2% over the past 60 days. Sony has a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Capcom plans, develops, manufactures, sells and distributes consumer video games. Its operating segment consists of Digital Contents, Arcade Operations, Amusement Equipments and Other Businesses.

The company's expected earnings growth rate for the current year is 43.5%. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the past 60 days. Capcom has a Zacks Rank #2.

Zacks Top 10 Stocks for 2021

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Capcom Co., Ltd. (CCOEY) : Free Stock Analysis Report
 
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