Qorvo (QRVO) Down 15.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Qorvo (QRVO). Shares have lost about 15.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Qorvo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Qorvo Q3 Earnings & Revenues Beat Estimates

Qorvo Inc. reported third-quarter fiscal 2020 non-GAAP earnings of $1.86 per share, which surpassed the Zacks Consensus Estimate by 11.4%. The figure improved 0.5% on a year-over-year basis.

Revenues on a non-GAAP basis increased 4.4% year over year to $869.1 million. Notably, the figure was higher than the guided range of $840 million to $860 million. Further, the top line outpaced the consensus mark by 2.2%.

The results can be attributed to improved progress in Infrastructure and Defense (IDP) sequentially and strong demand for Mobile Products (MP). The company benefited from increased demand in the performance tier for Radio Frequency (RF) Fusion based solutions and Bulk Acoustic Wave or BAW-based multiplexers.

Quarter Details

Segment-wise, MP revenues were $662 million. Segmental revenues were aided by robust demand from top customers.

During the third quarter, the company secured multiple design wins to supply low, mid-high and ultra-high band solutions for next-generation 5G smartphones. These are highly integrated and high performance 4G and 5G solutions, enabling customers to reduce product footprint and enhance system performance.

Additionally, Qorvo secured new 4G and 5G design wins and extended leadership in BAW-based multiplexers, including hexaplexers and recently launched micro BAW-based quadplexer.

Moreover, design wins for ultra-high band FEM were broad based across customers and made with multiple 5G cellular chipsets.

IDP revenues declined year over year to $207 million, primarily owing to impacts of export restrictions.

Strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications) and rapid adoption of gallium nitride or GaN for high-power applications were key catalysts.

Qorvo expanded GaN customer engagements with ramp up of high-power amplifiers at a third major OEM to support 5G massive Multiple Input Multiple Output or MIMO deployments in the third quarter. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well.

Notably, in the third quarter, the company completed the purchase of the remaining equity in Cavendish Kinetics, a RF Micro-Electro-Mechanical Systems (MEMS) company, further strengthening its technology portfolio for switches, tuners, and other products.

Additionally, the company commenced volume shipments of BAW filters to a top-tier infrastructure OEM supporting China Mobile’s 5G small-cell deployments.

Accelerating timeline for 5G deployment bodes well for Qorvo. It has participated in dozens of 5G field trials and demonstrations.

Moreover, Qorvo launched high power GaAs FEM addressing enhanced performance requirements of second-generation 5G millimeter wave base stations during the third quarter.

In the Connectivity business, the company secured new design wins and increased shipments of Wi-Fi 6 Front-End Modules (FEMs) across Customer Premises Equipment (CPE), retail and mobile, supported by new GaAs and BAW processors.

For the Connected Home, Qorvo initiated sampling of the industry’s first radio solution combining Zigbee, Thread and Bluetooth Low Energy SoC with a Wi-Fi 6 FEM to enable next-generation distributed Wi-Fi networks.

For the connected car, the company introduced a complete V2X front-end solution, featuring 5.9 gigahertz Wi-Fi coexistence BAW filters, which are gaining traction among automotive OEMs and Tier 1 suppliers.

Operational Details

Non-GAAP gross margin contracted 20 basis points (bps) from the year-ago quarter to 49.3%. This can be attributed to unfavorable product mix.

Non-GAAP operating expenses increased 16.7% year over year to $175.6 million.

Non-GAAP operating margin contacted 240 bps from the year-ago quarter to 29%.

Balance Sheet & Cash Flow

As of Dec 28, 2019, cash and cash equivalents were $1.09 billion compared with $586.8 million reported in the previous quarter. As of Dec 28, 2019 long-term debt was $1.57 billion, which soared 54.8% sequentially.

Net cash provided by operating activities was $300.8 million that increased from $173 million in the previous quarter. Free cash flow during the reported quarter came in at $260.1 million.

During the third quarter, the company repurchased shares worth $125 million under the share repurchase program.

Guidance

For fourth-quarter fiscal 2020, Qorvo anticipates revenues between $800 million and $840 million. Earnings are projected to be $1.55 per share at the mid-point.

Mobile Products sales in the fourth quarter are expected to decline sequentially. Nonetheless, IDP revenues are expected to increase year over year and sequentially, primarily owing to sustained strength in defense, the ramp up of Wi-Fi 6 and broader 5G infrastructure customer demand.

Non-GAAP gross margin is anticipated to be 48.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 45.8% due to these changes.

VGM Scores

Currently, Qorvo has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Qorvo has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Qorvo, Inc. (QRVO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.