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Bull of the Day: Qorvo (QRVO)

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Qorvo (QRVO - Free Report) is a Zacks Rank #1 (Strong Buy) that is a leading provider of core technologies and radio frequency solutions for mobile, infrastructure and aerospace/defense applications.

The stock was a big performer in 2020, but investors are questioning the current stock price as there are valuation questions. However, a recent sell off after a solid earnings report, gives bulls an opportunity to enter for a longer-term play.

About the Company

The company was formed after RF micro devices and TriQuint Semiconductor merged and Qorvo went public in 2015. Qorvo is headquartered in Greensboro, NC and has over 7,900 full time employees.

Qorvo operates in two segments: Mobile Products (MP) and Infrastructure & Defense products (IDP). The MP segment supplies RF and Wi-Fi solutions and was almost 66% of 2020 revenues. The IDP segment is used for high performance defense systems such as radar, electronic warfare and communication systems, Wifi equipment, LTE and 5G base stations, could connectivity, automotive connectivity and smart home solutions.

45% of Qorvo’s revenues came form the United States, while China was 34% of its international sales. Apple is a huge customer, with 33% of 2020 revenues coming from the big tech company.

Earnings and Estimates

Early in February, Qorvo reported an EPS beat of 15% and guided Q4 higher, now seeing $2.42 v the $2.11 expected. The company also sees Q4 revenues higher, seeing a range of $1.03-1.06B v the $967M expected.

The big surprise was the gross margins, which came in at 54.4% vs the 51.7% seen last quarter.

The company has not missed on EPS since 2017, so it wasn’t a surprised to see this trend continue. However, continued adoption for 5G and strong demand for Wi-Fi, defense, power management and IoT are keeping analysts bullish.

For the current quarter, analysts have hiked estimates 17% over the last 30 days, from $2.08 to 2.44. For the current year, estimates have gone 9% higher, from $8.67 to $9.45.

Valuation

The stock has a Zacks Style Score of “B” in Growth, but “D” in value. According to a recent analyst report out by Piper, the stock trades at 17.4x EPS v the peer group trading at 18.2x. This would make the stock undervalued to its peers and as a result, the firm raised its price target to $190.

Analysts Targeting $200 and Beyond

Piper isn’t the only one that sees higher price targets, with many firms raising price targets after earnings:

Benchmark Company reiterated QRVO with Buy and a price target of $200, up from $185.  

Morgan Stanley reiterated QRVO with Overweight and a price target of $210, up from $196.  

Loop Capital reiterated QRVO with Buy and a price target of $213.  

JPMorgan Chase reiterated QRVO with Overweight and a price target of $210, up from $185.  

Raymond James reiterated QRVO with Outperform and a price target of $220, up from $200.  

Both Raymond James and Oppenheimer have $220 targets, about 25% higher from current levels.

The Technical Take

Since making lows at $67.54 during the March 2020 sell off, the stock has seen a steady trend higher, with the 50-day MA offering support along the way.

After earnings, the stock broke this moving average for a few days, but the bulls eventually stepped in. Additionally, the stocks recent pullback fell into a 61.8% Fibonacci retracement level drawn from December lows to all-time highs.

Last week the stock firmly broke back above the 21-day, changing the short-term momentum to the bulls. If the stock can clear the $180 level on heavy volume the $200 level could come quickly.

If we get a market sell off, patient investors should target the $137 area, which is where the 200-day MA resides.

 In Summary

Qorvo has a lot going for in on both the fundamental and technical fronts. The recent sell off gave investors the opportunity to enter at great prices, but those that missed below $170 still have plenty of upside left.

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