Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Rumors that Apple (AAPL -1.10%) is planning to kill the iPhone X persist.

Earlier this year, analysts at Rosenblatt Securities cited high costs in Apple's flagship model -- not just the cost for consumers to buy it, but also for Apple to build it -- as one reason Apple was likely to cut production rates and potentially even cease production of (the current version) of the iPhone X. Then came another note.

On Friday last week, analysts at little-known securities firm Mirabaud cited weak guidance from an Apple supplier -- Taiwan Semiconductor Manufacturing -- as evidence that Apple is trying to "burn off inventory" of components needed to build the iPhone X, implying the company is moving to kill the high-end phone model entirely.

Is that good news or bad news for Apple? According to a different analyst today, the answer to that question is beside the point: The one thing Mizuho Securities is sure of is that this is bad news for Skyworks Solutions (SWKS 0.15%).

iPhone X laid flat

Apple's iPhone X sure is a beauty, but will it put Skyworks stock to sleep? Image source: Apple.

What's bad for Apple...

Here's the problem in a nutshell: Sales for Apple's new high-end iPhone X are underwhelming. Analysts expect overall iPhone shipments to be "flat or declining" this year, and average selling prices (ASPs) are expected to be weak as well. (Which is the opposite of what you'd expect if Apple were successfully selling lots of $999 iPhone X smartphones.)

This has analysts like Mirabaud believing "the iPhone X is dead" as a product. The device's $999 price tag is simply too expensive, and "[c]onsumers are turning their backs on high-priced smartphones" in general, warns the analyst. This trend is already making itself felt at Taiwan Semiconductor, and in Mizuho's opinion, Skyworks could be next on the hit list.

...may be worse for Skyworks

Why? "Handset ASPs may be approaching a ceiling," says Mizuho in a note covered today on StreetInsider.com (subscription required). At the same time, device makers like Apple are continuing to load their high-end phones with cutting edge tech like chip-on-film (CoF), 3D sensing, and OLED screens.

If they want to do that, though, and still keep prices at a level that consumers can abide, costs must be trimmed somewhere. Mizuho's worry is that smartphone makers will attempt to cut the cost of their products by "putting pressure on existing RF suppliers" like Skyworks to lower the cost of their components, thereby decreasing Apple's own costs, permitting it to reduce its retail prices while maintaining its own profit margins.

Of course, this would not be great news for Skyworks.

Running the numbers

Hence Mizuho's decision to downgrade Skyworks shares from buy to neutral, and to cut its price target on Skyworks stock from $125 to just $100 a share. But here's the thing:

Even Mizuho's new, more conservative price target still anticipates about a 13% rise in Skyworks' share price over the next 12 months. (Skyworks stock currently costs less than $89 a share.) And when you run the numbers, Skyworks stock actually looks pretty reasonably priced right now.

Although Skyworks reported only $823 million in GAAP profits last year, data from S&P Global Market Intelligence show that the company's real free cash flow was actually much stronger than that -- about $1.05 billion. Acknowledging this fact, even Mizuho admits that "SWKS continues to execute well."

Indeed, Skyworks' ability to throw off impressive amounts of cash from its business has enabled the company to fund a respectable 1.4% dividend yield (not bad for a tech stock) and to build up a warchest of $1.7 billion in cash on its balance sheet -- without a drop of debt.

At an enterprise value of $14.5 billion, this gives Skyworks an enterprise value-to-free-cash-flow ratio of only 13.7, versus a total return (the dividend yield, plus analysts' anticipated profit growth rate of 12.6%) of 14%. All else being equal, I'd say this is enough of a return to more than cover Skyworks' 13.7 EV/FCF ratio.

Worries over the fate of the iPhone aside, if investors overreact and sell off Skyworks stock on Mizuho's downgrade today, I'd be looking at that as a buying opportunity.