For Immediate Release
Chicago, IL – February 10, 2021 – Zacks Equity Research Shares of Skyworks Solutions, Inc. SWKS as the Bull of the Day, Harley-Davidson, Inc. HOG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apple Inc. AAPL, Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL.
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.
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).
Recent Earnings Report
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, but it would appear that this stock still has some legs to rally.
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 17.4x compared to the tech sector’s 29x.
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. 14 out of 22 analysts are calling this stock a buy today with no sell ratings. Its most optimistic price target represents a 36% upside, which I believe is very attainable after that stellar earnings report at the end of January.
Bear of the Day:
Harley-Davidson is a Zacks Rank #5 (Strong Sell) that is a popular motorcycle manufacturer. The company operates in two segments, Motorcycles and Related Products and Financial Services. The motorcycle segment represents 80% of their revenues and is the primary driver of earnings growth.
Unfortunately for investors, there wasn’t much growth this past quarter. The company disappointed on EPS and the stock was crushed. As we approach the summer driving season, investors are left with hope that the motorcycle consumer will come back strong with their stimulus checks. However, there might be more of a fundamental issue at hand.
More about HOG
Harley-Davidson is an iconic American brand that was founded in 1903 in Milwaukee, Wisconsin. The company is valued around $5 billion and has a PE of 14. HOG has Zacks Style Scores of “A” in Value but “D” in Growth. Harley pays a small dividend of 0.24%.
There is no questioning Harley’s influence in Americana over the years, but that doesn’t help its stock price today. Earnings last week forced the stock over 20% lower the day they reported.
Before this quarter, Harley has missed on EPS only twice since 2019. The surprise miss last week wasn’t necessarily surprising, but the magnitude was, with a 730% EPS miss. The company lost 44 cents instead of the expected +.10 and revenues came in below expectations as well. Both U.S. and international sales were down year after year and the operating margin hurt, coming in at -37% vs the -5.3% last year.
While the numbers may seem like a disaster, the company unveiled “The Hardwire” a five-year strategic plan that will target profitable growth and brand desirability. In this plan the company will target low double-digit EPS growth through 2025 by broadening the view of its customer, investing in core segments and strengthening its commitment to electric motorcycles.
Management obviously has identified the issues and had comments going forward:
“The entire Harley-Davidson team put forth tremendous effort in 2020 and we now have the right organization, structure and strategy in place to make step changes in our performance and enhance our position as the most desirable motorcycle brand in the world.”
While there is a plan, analysts and investors might not be on board yet. The company will have to prove itself in upcoming quarters as for now, estimates are falling.
The quarter forced estimates lower over all time frames. The last 7 days have seen next quarters estimates fall from $1.20 to $0.90, or 20%. For the current year, estimates dropped from $2.76 to $2.34, or 15%.
The drop in estimates led to price cuts from Wedbush ($42 from $45) and BMO ($40 from $46).
A Fundamental Issue
The motorcycle industry has gone through hard years as late, with sluggish sales being blamed on more risk-averse millennials. There simply aren’t enough new riders to replace the older riders that supported the industry for so long. Motorcycles simply aren’t as cool as they used to be. For those with the disposable income that might have taken up the idea thirty years ago, they are not riding or buying into the brand.
But perhaps the end of COVID might change everything. The idea of getting out on the road after being stuck in your house for a year might sound great for some new customers. Harley and other motorcycle companies need to market and sell that idea if they want to change the trend away from bikes.
The chart looked great before earnings, but the down move broke some key levels. The $30 area is the 200-day Moving average and investors that think the company can turn things around should eyeball that level. Back over $40 would indicate the bulls know something the bears don’t, so let’s assume if the stock can get back there, The Hardwire plan is working
It’s going to take a while for the company to prove itself, so for now investors should consider this stock dead money. It is hard not to root for a brand like Harley, as the iconic American image has so much value in itself. Everyone loves a turnaround story, but be patient with this one.
3 Stocks Set to Grow in Tune with Demand for Music Streaming
Music streaming has been gaining popularity over the past few years owing to the convenience it provides. With the help of a stable Internet connection, users can stream and listen to a diverse library of songs, suited to their liking, without the compulsion to download any of them on their devices. Notably, per a report by Research and Markets, the global music streaming market size is estimated to reach $60.5 billion by 2026 at a CAGR of 16% during the forecast period, as quoted in a GlobeNewswire article.
The article mentioned that the rising number of Internet users as well as increasing usage of smartphones and laptops stand to contribute to the growth of the market during the forecast period. Moreover, the article stated that the availability of music suiting the user’s mood and time is also another reason which is set to bolster the growth, along with technologies like voice recognition that is helping in improving consumer experience.
In fact, Statista estimated that user penetration for music streaming worldwide is set to be 8.3% in 2021 and reach 11.6% by 2025. Notably, the average revenue per user is estimated to amount to $36.81 in 2021. Moreover, Statista also mentioned that the United States is set to generate the highest revenues in music streaming in 2021.
COVID-19 Pandemic Aids Music Streaming Growth
The COVID-19 pandemic has also provided a major boost to music streaming. As the pandemic forced people to enter a lockdown to contain the spread of the virus, they had to restrain from visiting movie theatres, restaurants and so on, and were forced to resort to in-home forms of entertainment. Notably, music streaming happened to be one of them.
In fact, music streaming witnessed steady growth in the United States. Per an MRC Data report, total on-demand audio streaming volume in the United States was up 17% in 2020, increasing by 126.7 billion plays, as mentioned in a Music Business Worldwide article. Moreover, the article mentioned that on-demand audio plays on music streaming services in the United States was reported at 872.6 billion in 2020 compared to 745.9 billion in 2019.
3 Stocks to Watch
The global music streaming industry looks set to witness growth going forward due to the convenience it provides. Users have the option to choose from a diverse library of songs that cater to their mood at the moment without requiring to download the songs on their devices. This makes it a good time to look at companies which are focused on music streaming and stand to make the most of the potential of the market in the near future.
Notably, we have selected three such stocks that carry a Zacks Rank #1 (Strong Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Apple designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories worldwide. Notably, the company has a music subscription service named Apple Music, which allows users to stream songs or listen to on-demand radio stations. It currently has a Zacks Rank #1.
The Zacks Consensus Estimate for its current-year earnings increased 11.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 36.3%.
Amazon engages in the retail sale of consumer products and subscriptions in North America and internationally. Notably, the company has its own music streaming platform called Amazon Prime Music and it is offered for free with the Amazon Prime membership. Amazon currently has a Zacks Rank #3.
The Zacks Consensus Estimate for its current-year earnings increased 8.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.1%.
Alphabet provides online advertising services and operates through Google Services, Google Cloud and Other Bets segments. Notably, Google’s subsidiary YouTube has a music streaming platform named YouTube Music, which allows users to stream through a library of songs and music videos suited to their liking.
The company currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 9.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.1%.
More Stock News: This Is Bigger than the iPhone!
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