“Weekly Options TradeS” Recommendations
Week Beginning Monday, APRIL 26, 2021

Major Catalysts for This Trade.....

1. Over-Reaction To Pinterest Earnings.....

Pinterest stock dropped 14.5%, closing at 66.33 yesterday

But, Pinterest’s first-quarter numbers were great.

Users rose 30%. ARPU rose 35%. Revenues rose 78%. Gross margins expanded 880 basis points. The expense rate compressed 31 percentage points. Adjusted EBITDA margins expanded a jaw-dropping 37 percentage points.

But management said that since mid-March, the platform’s user growth rate has slowed significantly.

Management expects this consumer behavior normalization to act as a headwind for user growth over the next few months, and is actually guiding for the platform to add just a few million new users in Q2, versus 19 million new users in Q1.

PINS stock dropped big on that news, because user growth is the centerpiece of a social media company’s growth narrative.

However, this is not a concern at all, because slowing user growth is ephemeral and that, while it lasts, it will be offset by accelerating ARPU growth.

Pinterest is a social commerce platform with a wide array of durable value props that, yes, were exceptionally valuable during the pandemic, but will remain very valuable after the pandemic leaves, too.

People are still going to remodel their homes. They are still going to look for new outfits to wear, find inspiration for where to go on vacation, seek new workout routines, and share cooking recipes. Pinterest is the place to do all of those things.

Plus, Pinterest is adding multiple new features — like Story Pins, on-platform shopping, interactive videos, and Shopify integrations — which are collectively drawing in more and more Gen Z users. This is a cohort that Pinterest has failed to meaningfully crack yet but which, if Pinterest does crack, will provide a long runway for user growth over the next few years.

By summer, Pinterest will be back to adding 10+ million new users every quarter.

While this slowdown does last, it will be offset by healthy ARPU growth.

Analysts Still Positive.....

Morgan Stanley, KeyBanc, Wedbush, JPMorgan, Deutsche Bank, and Wells Fargo all reiterated “Buy” ratings on PINS stock after the earnings report.

KeyBanc Capital Markets analyst Justin Patterson lowered his price target on Pinterest stock to 89, from 92. But he maintained a rating of overweight.

"We view monthly active user guidance, which Pinterest historically does not provide, as appropriately conservative, and believe several use cases (e.g. travel, wedding) and marketing initiatives could help drive upside," Patterson wrote in a note to clients. "We recommend buying PINS on weakness."

Overall, consensus on the Street is that PINS is a Moderate Buy based on 13 Buys and 9 Holds. The average analyst price target of $92.69 implies upside potential of about 19.4% to current levels.

3. Robust Second-Quarter Guidance.....

Management expects Q2 revenue will grow about 105% year over year. This outlook is brighter than Wall Street had been expecting. Going into the release, analysts had been modeling for Q2 revenue to increase 94% year over year.

Management also said it expected "Q2 global MAUs to grow in the mid-teens and U.S. MAUs to be around flat on a year-over-year percentage basis." 

That Pinterest guided for U.S. MAU year-over-year growth to stall in Q2 is probably the biggest factor behind the stock's decline on Wednesday.

Major Catalysts for This Trade.....

1. Earnings on Thursday, April 29.....

Skyworks Solutions has already set a high bar for the second quarter of fiscal 2021. The company expects to deliver $2.34 per share in adjusted earnings on revenue between $1.125 billion and $1.175 billion. Skyworks' revenue would increase 50% year over year at the midpoint of the guidance range, while adjusted earnings are on track to spike an impressive 75%.

Skyworks Solutions could surpass its expectations and deliver stronger Q2 numbers. Apple -- Skyworks' largest customer, which produced 56% of its sales last fiscal year -- is one reason why that may be the case. Skyworks is supplying multiple radio-frequency chips for use in the iPhone 12 lineup, and that's going to create a massive tailwind for the company given the popularity of Apple's new phones.

For the last reported quarter, it was expected that Skyworks would post earnings of $2.08 per share when it actually produced earnings of $3.36, delivering a surprise of +61.54%.

Over the last four quarters, the company has beaten consensus EPS estimates three times.

2. iPhone Sales.....

The iPhone 12 models have been setting the sales chart on fire ever since they were launched late last year, encouraging Apple to raise production. Supply chain checks indicate that Apple could have made around 60 million iPhones in the first quarter of 2021, driven by a sales "supercycle." Strategy Analytics estimates that Apple sold 57 million iPhones last quarter, an increase of 44% over the prior-year period.

A jump in iPhone sales volumes, and the fact that Skyworks should be getting more revenue from each unit of Apple's new devices thanks to the higher cost of components of 5G smartphones, should pave the way for revenue and earnings beats.

3. Non-mobile Business Spiking.....

Skyworks' revenue from the non-mobile business (formally known as the broad markets segment) spiked 35% year over year in the first quarter. Though this segment accounts for 22% of the company's total revenue, it is showing signs of moving the needle in a bigger way in the long run. That's because the broad markets business stands to gain from a fast-growing technology trend in the form of the Internet of Things.

4. Targeting Wireless Connectivity Applications.....

Skyworks is targeting wireless connectivity applications such as Wi-Fi 6 devices, automotive, healthcare, and audio solutions, among others. The company has found success in these areas as the rapid growth of the broad markets business shows us. It has also built a wide customer base including the likes of Cisco Systems, Netgear, Alphabet's Fitbit, Volkswagen, and Toyota, to name a few.

5. Solid Guidance.....

Wall Street expects Skyworks to deliver third-quarter revenue of $1.07 billion and adjusted earnings of $2.10 per share. That would translate into 45% year-over-year sales growth and a 68% rise in adjusted earnings. This is already impressive, but Skyworks can deliver better guidance considering the developments that are reportedly taking place at its largest customer.

Apple supplier Taiwan Semiconductor Manufacturing is reportedly planning to start the production of the chip that will go into this year's iPhone lineup next month. For comparison, the iPhone 12's A14 chip hit the production lines in June last year. Additionally, Apple is expected to produce 25% more units of this year's iPhone models as compared to 80 million units of the iPhone 12 produced in 2020.

If true, such a development could pave the way for strong guidance from Skyworks for the rest of the year. Analysts expect the chipmaker to end the fiscal year with 46% revenue growth and a 67% jump in earnings, and the sustained success of its largest customer in the 5G smartphone market could make that possible.

6. Acquisition of Silicon Labs.....

Liam Griffin, president and CEO of Skyworks Solutions announced Friday the acquisition of the infrastructure and automotive business of Silicon Labs (SLAB) for $2.75 billion.

“We are pleased to welcome the Infrastructure & Automotive team to Skyworks when this transaction is completed. This acquisition will broadly expand our capabilities across high-growth end markets including automotive, communications and industrial, creating new and highly compelling opportunities for Skyworks.”

Griffin called the announcement a "perfect deal" that gives Skyworks great technologies that they wanted in a transaction that's immediately accretive to their earnings. He said it gives Skyworks access to markets they wanted to be in, including autos and the data center.

“By leveraging our global sales channels, operational scale and deep customer relationships, Skyworks is well positioned to drive above-market growth, while diversifying revenues, expanding margins and delivering strong returns in earnings and cash generation,” Griffin added.

Unlike most acquisitions that include a lot of cost cutting synergies, Griffin noted that with this deal, they'll be investing and bringing all of the Skyworks' resources to grow these segments. He said he can't wait to bring 385 really smart people into the Skyworks family.

The acquisition is expected to be immediately accretive to SWKS and is anticipated to close in the third quarter of this year. SWKS believes that Silicon Labs’ technology portfolios and related assets will be “highly complementary” to its connectivity portfolio.

With this acquisition, SWKS also expects to expand rapidly into different business segments including electric and hybrid vehicles, 5G wireless infrastructure, power supply, industrial and motor control, and optical data communication. This acquisition will enable SWKS to provide products to a market worth $20 billion annually.

Raymond James and BMO note that the deal will immediately add to Skyworks' earnings. 

Raymond James said the deal "isn't inexpensive" while BMO said Skyworks is paying "a reasonable multiple." Both rate Skyworks outperform.

Morgan Stanley, with a more conservative equal-weight rating on the stock, said the deal should be a positive for both companies.

7. Analyst Positivity.....

Skyworks Solutions had its price objective boosted by research analysts at B. Riley from $225.00 to $230.00 in a research report issued on Friday. The brokerage currently has a “buy” rating on the semiconductor manufacturer’s stock. B. Riley’s price objective would indicate a potential upside of 25.40% from the company’s current price.

Also, Skyworks Solutions had its price objective lifted by Mizuho from $195.00 to $207.00 in a report released last Thursday morning. They currently have a buy rating on the semiconductor manufacturer’s stock.

Several other research analysts also recently weighed in on the company.....

• Susquehanna boosted their target price on Skyworks Solutions from $160.00 to $190.00 and gave the stock a “neutral” rating in a research note on Friday, January 29th. They noted that the move was a valuation call.
• Needham & Company LLC boosted their target price on Skyworks Solutions from $200.00 to $245.00 and gave the stock a “buy” rating in a research note on Friday, January 29th.

Overall, consensus among Wall Street analysts is a Moderate Buy based on 12 Buys and 7 Holds. The average analyst price target of $208.25 implies upside potential of about 13.5% to current levels.