Qorvo: Time to Sell?

Qorvo (QRVO) announced third quarter ended January 2, 2016 total revenue of $619.7 million, down 12 percent sequentially from $707.4 million in second quarter of 2015. The company has also provided revenue outlook for fourth quarter ended March, 31 2016 and estimates revenue to be nearly $600 million.

Qorvo declared third quarter non-GAAP net income of $148.0 million, or $1.03 per diluted share, down 24 percent sequentially from $183.3 million or $1.22 per diluted share during the second quarter of 2015. Going forward, the company estimates fourth quarter diluted EPS in the range of $0.90 to $0.95 and depending on about 142 million shares.

Witnessing tough times

The key mobile technology infrastructure company reported continued sequential decline in both its top and bottom lines primarily due to weaker yields and strategic inventory adjustments, eating into the key company margins.

Each of the strategic GaN market segments including, infrastructure, CATV, Military, VSAT, PtP and others are forecasted to get tripled within 5 years, primarily driven by the enhanced customer traction for the company’s innovative set of major turnkey solutions which is expected to drive long-term sustainable company growth and deliver improved shareholder returns.

Qorvo is focused on optimizing its products and services portfolio and thus, repositioned IDP to enhance its growth including, doubling of the SAM and growing the SAM CAGR by approximately 2 to 3 times.
The prospective growth opportunities for the company seems well-established with Qorvo uniquely addressing the rapid market shifts and continues to hunt for fresh growth opportunities to successfully leverage its technology.

The accelerated acceptance of new RF technologies across the high-growth IDP markets and rapidly expanding each of the GaN market segments over the next 5 years is forecasted to notably enhance the company’s top line growth and continue to deliver lasting shareholder returns.

Focusing in right areas

Qorvo is increasingly expanding the year-over-year supply of 100G optical transceiver units over the years with over 5 million 100G optical ports forecasted to be developed by the fiscal year 2020.

The mobile technology services provider strategically enhanced its presence in two key technology segments including, connected car and connected home with significant innovative design wins recorded in access points and gateways. Qorvo is estimated to ship over 3 billion connected home units by 2020 and deliver 69 million connected car shipments globally at a CAGR of 45 percent over the next 5 years from 2015 till 2020.

The ongoing penetration of Qorvo in optical transport segment through advanced optical ports and visible significant growth in connected home and connected car segments is expected to drive significant customer traction for the company’s key services and thus, notable top line growth and attractive stockholder returns.

Qorvo strategically bought back 4.6 million shares of its common stock for approximately $250 million. Further, during the December quarter, the company delivered $218 million of operating cash flows and bought back $250 million worth of common stock to improve shareholder value. Moving ahead, Qorvo has nearly $750 million of outstanding share repurchase authority which is believed to further enhance the key investor returns and in line with the company’s continued commitment to deliver improved shareholder returns.

The consensus estimate among 20 polled investment analysts evaluating Qorvo Inc. suggests that the company would outperform the market. This consensus estimate is maintained since the investment analyst’s sentiments declined on Jan 05, 2015. The earlier consensus estimate suggested investors to buy equity in the company.

Qorvo seems extremely focused on delivering attractive shareholder returns in form of dividends and planned share repurchases while continuing to attract key clients with its innovative set of products and services.

Conclusion

Overall, the investors are advised to “Hold” their position in Qorvo, Inc. considering the company’s significant growth prospects with PEG ratio of 0.67, indicating healthy company growth and comparable to the industry’s growth average of 0.73. The profit margin of 0.07% seems nominal. Moreover, Qorvo has an attractive financial position with significant total cash of $1.03 billion against smaller total debt position of $987.89 million only, encouraging the company to make future growth investments. However, the stock is hugely overvalued with trailing P/E and forward P/E ratios of 2,615.38 and 7.54 respectively, depicting costly stock against logical industry’s average P/E of 17.09.
Published on Feb 12, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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