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

Zacks Equity Research

Skyworks Solutions, Inc. SWKS  is slated to release third-quarter 2019 results soon. The company expects near-term softness in Chinese market to remain a headwind in the quarter to be reported. Moreover, unit decline across mobile business is likely to impact the third-quarter results.

Notably, the company has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 1.74%.

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

 

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

Skyworks Solutions, Inc. price-consensus-eps-surprise-chart | Skyworks Solutions, Inc. Quote

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for third-quarter revenues is pegged at $765.9 million, suggesting a decline of 14.4% from the year-ago reported figure. The same for earnings stands at $1.34, indicating a fall of 18.3% from the prior-year quarter's figure.

Consequently, the company has been witnessing downward revisions of late. The Zacks Consensus Estimate for the company’s earnings in third quarter has declined by 16 cents to $1.34 per share in the past 60 days.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Skyworks recently lowered third-quarter fiscal 2019 outlook. The company now anticipates third-quarter fiscal 2019 revenues to be in the band of $755 million to $775 million (mid-point of $765 million), down from its prior range of $815-$835 million (mid-point of $825 million). It suggests a decline of 7.3% considering the mid-point.

Non-GAAP earnings per share have been forecast to be $1.34 per share at the mid-point, down from the previous guidance of $1.50 per share.

On May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. and 68 of its affiliates to the “Entity List” maintained by U.S. Department of Commerce.

This decision bars Skyworks from supplying products to Huawei and its affiliates, which compelled the company to trim revenue guidance. The dependence on Huawei is anticipated to weigh on the company’s performance in the upcoming quarterly results and the days ahead.

A saturated consumer electronic market, particularly the sluggish smartphone market, is likely to hinder growth prospects of the industry which Skyworks belongs to.

Further, the ongoing trade war between the United States and China has created a volatile environment that is not conducive for investments. Notably, the industry participants generate significant portion of their revenues from China. As the direct revenue sources are now under the radar of plausible tariffs, concern regarding the prospects of the industry has increased in recent times.

These factors are likely to be major concerns for Skyworks, going forward.

Further, the company faces stiff competition from the likes of Broadcom and Qorvo, which exposes it to significant pricing pressures. This is likely to hamper the third-quarter results. Overdependence on Apple for revenue generation remains a concern.

However, the company is gaining from its portfolio strength, particularly in the 5G applications and IoT market. The lifting of ban on ZTE by the United States is positive, although the contribution from the Chinese original equipment manufacturer (OEM) is expected to be minimal in the near term.

What Our Quantitative Model States

Our proven model does not conclusively show that Skyworksis likely to beat on earnings in to-be reported quarter. This is because the stock does not have the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: Skyworkshas an Earnings ESP of -0.13%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Skyworks has a Zacks Rank #5 (Strong Sell). Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.92% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Netflix, Inc. NFLX has an Earnings ESP of +5.99% and a Zacks Rank #2.

AT&T Inc. T has an Earnings ESP of +0.46% and a Zacks Rank #3.

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