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STOCK RECOMMENDATION FOR HAYLEY LARGE CAP FUND
P R E PA R E D BY T H AO P H U O N G L E , V I L L A N OVA M S F ’ 1 6
SKYWORKS SOLUTIONS, INC.Company Overview
Stock Analysis
Target Price
Summary
2
BUSINESS DESCRIPTION3
Company Overview• Founded in 1962
• Provide analog & mixed signal semiconductors
• Include a portfolio of a wide range of products
• Over 1,800 worldwide patents
• One of the world’s largest RF suppliers to the smartphone industry
• Went public in 1990 as NASDAQ:SWKS
• IWF Score of 49
4
10/22/10
1/28/115/6/11
8/12/11
11/18/11
2/24/126/1/12
9/7/12
12/14/12
3/22/13
6/28/13
10/4/13
1/10/14
4/18/14
7/25/14
10/31/142/6/15
5/15/15
8/21/150
20
40
60
80
100
120
Historical Price of SWKS
Price
Year
Pric
e
Customers
5
Foxconn34%
Samsung10%
Other56%
Revenue by Customers in 2014
Foxconn Samsung Other
• Key customers: Foxconn, Samsung, Cisco,
Dell, Fujitsu, GE, Google, HTC, Huawei, Lenovo,
LG, Microsoft, etc.
• Through Foxconn: main RF supplier for Apple
Apple & Skyworks
10/15/10
12/31/10
3/18/116/3/11
8/19/11
11/4/11
1/20/124/6/12
6/22/129/7/12
11/23/122/8/13
4/26/13
7/12/13
9/27/13
12/13/13
2/28/14
5/16/148/1/14
10/17/141/2/15
3/20/156/5/15
8/21/150
20
40
60
80
100
120
140
5y Price Comparison between AAPL & SWKS
Skyworks Apple
6
Stock AnalysisQuality
Growth
Momentum
Valuation
7
Business Quality• Strategic relationship with both Samsung & Apple
• Quality of products
• Diversified portfolio
• Sustainable energy plans
8
Quality Growth Momentum Valuation
Management Quality• Award winning management
• CEO: David Aldrich-12 years:• 1,245% stock growth• One of America’s best managed companies in 2014
• CTO: Dr. Peter L. Gammel• 20 years experience in new product & funding development• About 50 patents filings & more than 200 publications
9
Quality Growth Momentum Valuation
Industry Analysis: Porter’s Five ForcesForce Strength Analysis
Threat of New Entrants High • High capital requirement• High economies of scale
Power of Suppliers Low • Lots of suppliers• Low switching costs
Power of Buyers Low • Threat of backward integration• Dominated by small large players
Availability of Substitutes Medium • Intellectual property rights• “Copy cat”
Rivalry Medium • Pressure to develop new technology• High exit barriers• Few major players
10
Quality Growth Momentum Valuation
Industry Analysis: Demand Drivers
Gaming20hrs-1.2GB
Music Streaming
10hrs-1.7GB
Std. Def Video
10hrs-2.6GB
High Def Video
10hrs-10GB4k Video
10hrs-30GB
11
Quality Growth Momentum Valuation
Cloud computing: Significant & Growing contributor to data demand
Souce: U.S Cellulars, 4G Americas
Mean usage in North America per month
Industry Analysis: Demand Drivers
• Early stage of mobile payments
• Increasing growth for e-commerce
• Higher demand for businesses to connect with customers through mobile
• New market opportunities: Connected Home & Automotive Apps
12
Quality Growth Momentum Valuation
Financial Quality: Profitability
13
Quality Growth Momentum Valuation
2005 2006 2007 2008 2009 2010 2011 2012 201 2014
-7.74
17.19
-11.59
19.76
SWKS’s ROA & ROE from 2005-2014
Return on Assets Return on Equity
2005 2006 2007 2008 2009 2010 2011 2012 201 201436.00
37.00
38.00
39.00
40.00
41.00
42.00
43.00
44.00
38.54
41.14
43.50
Gross Margin
Financial Quality: Profitability <cont’>
14
Skyworks Analog Devices Avago Technologies Linear Technology Corp.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
24.21%
20.03%
5.93%
34.71%
Comparable ROIC in FY2014
Skyworks Analog Devices Avago Technologies Linear Technology Corp.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
120.93%
84.06%
45.10%
98.64%
Comparable Sales/IC in FY2014
Quality Growth Momentum Valuation
Historical Growth
Sep'10 Sep'11 Sep'12 Sep'13 Sep'140
0.5
1
1.5
2
2.5
3
0.75
1.2 1.12
1.47
2.4
EPS
EPS Exponential (EPS)
15
Quality Growth Momentum Valuation
2010 2011 2012 2013 20140.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
33.55%
10.55%
27.87%
20.92%
Sales Growth for the past 5 years
Sales Growth Average
Future Growth
2010 2011 2012 2013 2014 2015 2016 20170.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1.071.42 1.57
1.79
2.29
2.93
3.75
4.68
Forecasted Sales
• 26.9% average sales growth for the next 3 years
• Consistent with management’s expectation & Bloomberg & FactSet forecasts
16
Quality Growth Momentum Valuation
Price Momentum: Relative to IT Industry
10/31/05
1/30/065/1/06
7/31/06
10/30/06
1/29/07
4/30/07
7/30/07
10/29/07
1/28/08
4/28/08
7/28/08
10/27/08
1/26/09
4/27/09
7/27/09
10/26/09
1/25/10
4/26/10
7/26/10
10/25/10
1/24/11
4/25/11
7/25/11
10/24/11
1/23/12
4/23/12
7/23/12
10/22/12
1/21/13
4/22/13
7/22/13
10/21/13
1/20/14
4/21/14
7/21/14
10/20/14
1/19/15
4/20/15
7/20/150
500
1000
1500
2000
2500
(INDEX) Skyworks (INDEX) SP5IT
17
Quality Growth Momentum Valuation
Price Mometum: Relative to Competitors
18
Quality Growth Momentum Valuation
10/18/13
11/5/13
11/23/13
12/11/13
12/29/13
1/16/142/3/14
2/21/14
3/11/14
3/29/14
4/16/145/4/14
5/22/146/9/14
6/27/14
7/15/148/2/14
8/20/149/7/14
9/25/14
10/13/14
10/31/14
11/18/14
12/6/14
12/24/14
1/11/15
1/29/15
2/16/153/6/15
3/24/15
4/11/15
4/29/15
5/17/156/4/15
6/22/15
7/10/15
7/28/15
8/15/159/2/15
9/20/15
10/8/150
50
100
150
200
250
300
350
400
450
500
SWKS ADI AVGO
Earnings Momentum
19
Quality Growth Momentum Valuation
Q4 '10
Q1 '11
Q2 '11
Q3 '11
Q4 '11
Q1 '12
Q2 '12
Q3 '12
Q4 '12
Q1 '13
Q2 '13
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15
Q3 '15
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Actual Mean
Valuation: DCF Model
20
Quality Growth Momentum Valuation
FCF
Audited Audited Audited Audited Audited Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
FY 2010 FY 2011 FY 2012 FY 2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024
Free Cash Flow 98.6 172.2 270.2 208.6 200.5 244.3 267.6 539.7 786.2 950.1 1,082.1 1,672.5 1,772.8 1,861.5
Terminal Value 37,043.3
PV of FCFF 2,747.5
PV of Terminal Value 16,881.2
Inputs Share PriceTerminal Growth Rate 3.00% Terminal Growth RateWACC 8.18%
WACC
102.36 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75%6.68% $131.91 $139.02 $147.04 $156.15 $166.59 $178.67 $192.82
Enterprise Vaue 7.18% $115.34 $120.81 $126.90 $133.72 $141.41 $150.14 $160.15 Operating Value 19,628.74 7.68% $101.99 $106.29 $111.03 $116.28 $122.12 $128.66 $136.03 Plus: Non-operating Assets 771.87 8.18% $91.02 $94.47 $98.23 $102.36 $106.91 $111.94 $117.54 Enterprise Value 20,400.61 8.68% $81.88 $84.69 $87.73 $91.03 $94.64 $98.60 $102.96 Less: Debt & Equivalents (143.6) 9.18% $74.17 $76.48 $78.97 $81.66 $84.57 $87.74 $91.21 Equity Value 20,256.97 9.68% $67.59 $69.51 $71.57 $73.79 $76.18 $78.76 $81.55 Basic Shares Outstanding 197.90 Share Price $102.36
Valuation: PEG
SWKS AVGO LLTC ADI MXIM0
0.5
1
1.5
2
2.5
3
3.5
0.6 0.6
2.9
1.82
PEG
PEG
21
Quality Growth Momentum Valuation
Valuation: Relative Multiple
22
Quality Growth Momentum Valuation
Comparable Company Multiple Analysis Enterprise Value EBIT EV/EBIT
Analog Devices 16,653 829.6 20.07 Avago Technologies 33,945 635.0 53.46 Linear Technology Corp. 9,554 682.7 13.99
Mean 29.17 Median 20.07
FCF Audited Audited Audited Audited Audited Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
FY 2010 FY 2011 FY 2012 FY 2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024Free Cash Flow 98.6 172.2) 270.2 208.6 200.5 244.3 267.6 539.7 786.2 950.1 1,082.1 1,672.5 1,772.8 1,861.5 Terminal Value 45,335.15 PV of FCFF 5,361.69 PV of Terminal Value 20,659.96
Inputs Share PriceTerminal Growth Rate 3.00% Terminal Growth RateWACC 8.1759099%
WACC
$134.66 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75%6.68% $152.18 $152.47 $152.77 $153.06 $153.35 $153.64 $153.93
Enterprise Vaue 7.18% $145.78 $146.06 $146.34 $146.62 $146.90 $147.17 $147.45 Operating Value 26,021.65 7.68% $139.70 $139.96 $140.23 $140.49 $140.76 $141.02 $141.29 Plus: Non-operating Assets 771.87 8.18% $133.90 $134.16 $134.41 $134.66 $134.92 $135.17 $135.42 Enterprise Value 26,793.52 8.68% $128.39 $128.63 $128.87 $129.11 $129.36 $129.60 $129.84 Less: Debt & Equivalents (143.6) 9.18% $123.14 $123.37 $123.60 $123.83 $124.06 $124.29 $124.52 Equity Value 26,649.88 9.68% $118.14 $118.36 $118.58 $118.80 $119.02 $119.24 $119.46 Basic Shares Outstanding 197.90 Share Price $134.66
Target Price: $102.36 vs. Current price: $78.29Consensus Rating 4.54Buys 83.3% 20Holds 12.5% 3Sells 4.2% 112M Target Price $116.40
23
Source: Bloomberg
Source: FactSet
Summary• Rising RF content
• Good financial quality with robust revenue growth, growing ROE, expanding profit margin & strategic plan to diversify products
• Recommendation: BUY with target price: $102.35
Investment Risks:
• Operational risk• Dependent on Apple
• Economic risk• Another recession
24
Thank you!STOCK RECOMMENDATION FOR HAYLEY LARGE CAP FUND
P R E PA R E D BY T H AO P H U O N G L E , V I L L A N OVA M S F ’ 1 6
Q&A