The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency (RF) solutions, Front-end Modules (FEMs), low-noise amplifiers, diodes, multi-chip modules (MMICs) and optical components. The industry participants also offer surface acoustic wave (SAW), bulk acoustic wave (BAW) and film bulk acoustic resonator (FBAR) filters to enable smartphone devices to function more efficiently in congested RF spectrum.
The industry players serve a wide array of industries with their solutions finding ample application in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive and smart home applications.
Most of these companies utilize robust wafer fabrication technologies to gain competitive edge over peers. The companies also leverage ZigBee, Bluetooth Low Energy (BLE), Thread, silicon germanium and Gallium Nitride (GaN) technologies across their portfolio to stay ahead of the curve.
Here are the three major themes in the industry:
- Accelerated deployment of 5G and robust adoption of cloud computing applications holds promise considering the wireless communication market. Rise in uptake for higher bandwidth and LTE advancements are anticipated to bolster demand for RF power amplifiers. Moreover, innovation in consumer electronic market, particularly the smartphone market, is likely to aid industry prospects. We believe prominent industry players, including Qorvo (QRVO - Free Report) , Skyworks (SWKS - Free Report) , Resonant (RESN - Free Report) and Akoustis (AKTS - Free Report) are well poised to gain from this demand. In fact, IDC is optimistic about the rising deployment of 5G technology, particularly in China. The research firm projects 5G smartphone shipments to reach 190 million in 2020 or 14% of total smartphones shipped.
- Rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is driving the demand for RF semiconductor products beyond smartphone devices, which favors industry prospects. Notably, RF Semiconductors are setting the pace for technology modernization, consequently digitizing aspects like connectivity, healthcare, transport, defense, among others. For instance, Qorvo is gaining from rapid adoption of GaN for high-power defense applications and emerging healthcare applications. Diversified utilization of RF Semiconductor products bodes well for the industry players.
- Nonetheless, the industry participants have been bearing the brunt of the U.S.-China trade war for quite some time now. Markedly, the industry participants generate significant portion of their revenues from China. Moreover, slowing China economy and the coronavirus outbreak have raised concerns regarding the industry’s near-term prospects. Markedly, both Qorvo and Skyworks, derive significant revenues from Apple (AAPL - Free Report) , which has already issued an investor update stating that the coronavirus outbreak in China will temporarily constrain worldwide iPhone supply.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #22, which places it at the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since Sep 30, 2019, the industry’s earnings estimate for the current year has improved 5.4%.
Before we present a few stocks that you may want to consider for your portfolio given the positive backdrop, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Semiconductors - Radio Frequency Industry has outperformed both the S&P 500 and its own sector in the past year.
One Year Price Performance
The industry has gained 29.5% over this period against the S&P 500’s and broader sector’s growth of 12% and 18.4%, respectively.
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Semiconductors - Radio Frequency stocks, the industry is currently trading at 16.01X, lower than the S&P 500’s 17.15X and the sector’s 20.17X.
Over the past five years, the industry has traded as high as 20.56X and as low as 11.46X, with the median being at 14.55X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Growing proliferation of IoT, ADAS, AR/VR are driving the demand for RF semiconductor products. Further, anticipated recovery in smartphone market amid accelerated deployment of 5G favors the industry players’ prospects.
Here, we present two stocks, Qorvo, currently flaunting a Zacks Rank #1 (Strong Buy) and Skyworks, carrying a Zacks Rank #2 (Buy) that investors can take a look at. You can see the complete list of today’s Zacks #1 Rank stocks here.
Qorvo stock has gained 40.3% in the past year. Notably, the consensus estimates for fiscal 2020 earnings for the Greensboro, NC-based company has improved 10.5% to $6.29 over the past 60 days.
Price and Consensus: QRVO
Skyworks stock has returned 23.6% in the past year. Moreover, the consensus estimates for fiscal 2020 earnings for the Woburn, MA-based company has improved 2.2% to $6.57 over the past 60 days.
Price and Consensus: SWKS
We are also presenting one stock with a Zacks Rank #3 (Hold) that investors may want to keep a tab on.
Huntersville, NC-based Akoustis has returned 3.6% in the past year. The Zacks Consensus Estimate for fiscal 2020 earnings has narrowed from loss of $1.00 to loss of 91 cents per share over the past 60 days.
Price and Consensus: AKTS