Stocks’ Details

Skyworks Solutions Inc

Quarterly Highlights (For the Period ending 26 June 2020): Skyworks Solutions Inc (NASDAQ: SWKS) is an American semiconductor company, which manufactures semiconductors for use in radio frequency and mobile communications systems. As on 23 September 2020, the market capitalization of the company stood at ~US$22.36 billion. During the third quarter ended 26 June 2020, the company delivered decent results and reported a revenue of US$736.8 million, exceeding consensus estimates. In the same time span, operating income was US$147.5 million and diluted earnings per share stood at US$0.77. The Board declared a dividend of US$0.50 per share, representing an increase of 14% from the prior quarterly dividend of US$0.44 per share.

Outlook: The company is capitalizing on market momentum and accelerating widespread adoption of 5G. The company has provided guidance for the fourth quarter and expects revenue to be between US$830 million to US$850 million, with a non-GAAP diluted earnings per share of US$1.51. The company retains a positive strategic outlook and has announced a substantial raise in its quarterly dividend on the back of decent cash flow generation.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has expanded its Sky5® platform across major handsets OEMs and has ramped indoor and outdoor access points in Aruba, Juniper and Linksys. The stock of SWKS gave a return of 5.94% in the past three months but a negative return of 5.85% in the past one month. On the technical analysis front, the stock of SWKS has a support level of ~$93.42 and a resistance level of ~$138.92. We have valued the stock using the P/E multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, decent returns in the past three months, and positive long-term outlook, we recommend a ‘Buy’ rating on the stock at the closing price of US$133.92, down by 4.1% on 23 September 2020.

NVIDIA Corporation

Li Auto Inc. Announces the Adoption of NVIDIA's Next Generation Autonomous Driving Smart Chip: NVIDIA Corporation (NASDAQ: NVDA) is an American multinational technology company, which is pioneering demanding computer users. As on 23 September 2020, the market capitalization of the company stood at ~US$299.56 billion. The company has recently announced that it has incorporated a three-way strategic cooperation with the innovator in China’s new energy vehicle market, Li Auto Inc. Under the corporation, Li Auto will be the first OEM equipping its vehicles and will provide end users with upgradeable solutions. With the close cooperation with Li Auto, NVDA aims to bring AI-based autonomous driving functions to the new energy vehicles in China and around the world.

NVDA to Acquire Arm Limited for US$40 Billion: The company has announced a definitive agreement with SoftBank Group Corp. under which NVDA will acquire Arm Limited from SBG and the SoftBank Vision Fund for a consideration of US$40 billion. This transaction is likely to be accretive to the company’s gross margin and earnings per share.

Quarterly Financial Highlights: During the second quarter ended 26 July 2020, the company reported record revenue of US$3.87 billion, up 50% from US$2.58 billion in the pcp. In the same time span, earnings per diluted share for the quarter were $0.99, reflecting an increase of 10% from $0.90 in the pcp. During the quarter, NVIDIA paid US$99 million in quarterly cash dividends.

Quarterly Financial Highlights (Source: Company Reports)

Outlook: The company has provided guidance for the third quarter and expects revenue to be around $4.40 billion and the GAAP and non-GAAP gross margins are expected to be around 62.5% and 65.5%, respectively, plus or minus 50 basis points.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of NVDA is inclined towards its 52-weeks’ high level of US$589.07. The stock of NVDA gave a return of 31.27% in the past three months but a negative return of 4.68% in the past one month. On a technical front, the stock of NVDA has a support level of ~$212.82 and a resistance level of ~$500.23. We have valued the stock using the P/E multiple based illustrative relative valuation and have arrived at an upside of lower single-digit (in % terms). Considering the current trading levels, volatile returns in the past three months and softer market conditions due to COVID-19 pandemic, we suggest investors to wait for better entry levels and hence, give an ‘Expensive’ rating on the stock at the closing price of US$484.95, down by 4.07% on 23 September 2020.

Microchip Technology Inc.

Introduction of No-Cost, License- and Royalty-Free Ensemble Graphics Toolkit: Microchip Technology Inc. (NASDAQ: MCHP) is an American corporation, which manufactures microcontroller, mixed-signal, analog and Flash-IP integrated circuits. As on 23 September 2020, the market capitalization of the company stood at ~US$24.65 billion. The company has announced a new GUI development toolkit for its portfolio of 32-bit microprocessors running Linux, which is likely to reduce development cost and time-to-market for designers of industrial, medical, consumer and automotive graphical displays.

Quarterly Highlights (For the Quarter ended 30 June 2020): During the three months ended 30 June 2020, net sales of the company went down by 1.3% to US$1.310 billion. In the same time span, net income stood at US$123.6 million, or US$0.48 per diluted share, up from net income of US$50.7 million in the prior year's first fiscal quarter. During the quarter, the company has also strengthened its balance sheet and paid down US$394.0 million of debt. The Board declared a record quarterly dividend of 36.80 US cents per share.

Quarterly Financial Highlights (Source: Company Reports)

Outlook: The company has narrowed down its guidance for the second-quarter results and expects net sales for the September quarter to be down by 2% and 6% and GAAP earnings per share are expected to be in the range of US$0.23 and US$0.31.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company seems to be well-positioned to serve the needs of its customers and is likely to benefit from the “work from home” scenario. The stock of MCHP gave a negative return of 3.39% in the past three months and a negative return of 9.09% in the past one month. On a technical front, the stock of MCHP has a support level of ~$89.23 and a resistance level of ~$1089.34. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, decent financial performance despite the volatile environment, and valuation, we recommend a “Hold” rating on the stock at the closing price of $97.65, down by 1.56% on 23 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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