(QRVO - Free Report
) ) is a specialty maker of RF (radio frequency) semiconductors for mobile smartphones and the ubiquitous "Internet of Things" (IOT), which comprises devices from key fobs to jewelry for Internet-connected security and payments across millions of companies and billions of transactions annually and rising.
But the company stock has seen a steep slide in earnings estimates this year that does not appear to stopping any time soon.
Part of the malaise for Qorvo is its revenue leverage to key customer Apple (AAPL) who has been seeking lately to become more self-reliant in the design and manufacture of its semiconductors components.
Downward Estimate Revisions
Analysts have become increasingly bearish on the stock in the past couple of months with all estimates moving south and no movement in the opposite direction for the ongoing quarter.
Moreover, the company’s first quarter of fiscal 2019 earnings estimates (the current June quarter) moved down from 80 cents to 76 cents in the past 30 days. Further, in the same time period, the company’s fiscal 2019 earnings estimates moved down from $5.97 to $5.92.
And estimates had already been on a downward trajectory in previous months as the current fiscal year started out at an EPS consensus of $6.31.
Low Returns Across the Matrix
Given the other unattractive attributes like low return on equity (ROE), low return on capital (ROC) and low return on assets (ROA), makes the stock look very unappealing. Qorvo currently trades at a ROE of 13.8%, much lower than the industry’s average of 22.8%. Notably, the company has an ROC and ROA of 10.3% and 10.4% compared with the industry’s average of 20.8% and 18.5%, respectively.
The good news for Qorvo is that next fiscal year EPS estimates have actually risen from $6.87 to $6.95, granting the forward valuation an attractive sub-12X multiple.
Dependence on iPhone Sales
Qorvo depends on a handful of customers including Apple and Huawei to keep its revenues churning. To add to the woes, Apple’s self reliance strategy is a looming threat. Moreover, the company operates in a competitive landscape that is becoming more complex with low barriers to entry for RF chip technology. The increased competition is exerting pricing pressure, which remains a matter of concern for the company.
In order to sustain its market position, Qorvo has to constantly come up with new products. Consequently, higher spending on product development is likely to keep margins under pressure at least in the near term. Hence, we recommend investors to be wary of Qorvo shares until its Zacks Rank and estimates improve.
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