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Qorvo (QRVO) Down 5.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Qorvo (QRVO - Free Report) . Shares have lost about 5.9% 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.

Recent Earnings

Qorvo Inc. delivered first-quarter fiscal 2019 non-GAAP earnings of 96 cents per share, surpassing the Zacks Consensus Estimate of 76 cents. The figure jumped 10.3% from the year-ago quarter.

Revenues on a non-GAAP basis increased 8.3% year over year to $692.8 million. The figure was above management’s guidance range of $645-$655 million. The Zacks Consensus Estimate is pegged at $655 million.

The results reflected robust mobile growth in China and improved progress in IDP along with stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions as well as for antenna tuning, discrete components and BAW-based multiplexers.

Quarter Details

Segment-wise, MP revenues were $486 million, up 7% year over year driven by improving China demand of smartphone units.

Infrastructure and Defense (“IDP”) revenues grew 13% year over year to $207 million. The year-over-year increase was primarily due to robust growth in company’s wireless connectivity and growth in base station solutions.

Further, growth reflects strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications). Rapid adoption of GaN for high-power applications also drove defense top-line growth.

Revenue for IDP's IoT applications surged more than 30% year over year.

Qorvo recently launched five new 5G products. The enhanced 5G infrastructure solutions portfolio now comprises two new integrated front end modules (FEMs) — QPB9329 & QPB9319 — and a wideband driver amplifier — QPA9120. The other two new 2-stage power amplifiers are QPA4501 & QPA3506.

Accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well for the company.

Operational Details

Non-GAAP gross margin contracted 330 basis points (bps) from the year-ago quarter to 44%. This was primarily due to unfavorable mix.

Non-GAAP operating expenses as a percentage of revenue declined 270 bps on a year-over-year basis to 23.2% primarily driven by positive impact from restructuring activities.

Non-GAAP operating margin contacted 60 bps from the year-ago quarter to 20.8%.

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and cash equivalents and short-term investments were $392 million compared with $926 million reported in the previous quarter. Long-term debt was $558.3 million as compared with $983.3 million at the end of the previous quarter.

Net cash provided by operating activities was $75 million down from $259 million in the previous quarter. Capital expenditures were $44 million.

Further, Qorvo has returned $100 million to shareholders under its ongoing share repurchase program.

Guidance

For the second quarter of fiscal 2019, Qorvo expects revenues between $850 million and $860 million. Non-GAAP gross margin is anticipated to be roughly 47.5% due to favorable product mix. Earnings are projected to be $1.62 per share at mid-point.

IDP is expected to report strong results in the second quarter. MP revenues are anticipated to increase sequentially by more than 30% backed by seasonal ramps.

Operating expenses are expected to increase in the second quarter to approximately $170 million on higher personnel costs, including increased design activity.

Management forecasts second half fiscal 2019 gross margin to be at least 50%.

For fiscal 2019, Qorvo expects revenues to grow around 10% driven by strong growth from premium mobile products and continued strength in defense, IoT and GaN.

Qorvo stated that IDP long-term growth prospects are bright due to a diversified product portfolio that include solutions for advanced radars and other electronic warfare defense applications, Wi-Fi and connectivity applications as well as GaAs and GaN products for wireless infrastructure.

For fiscal 2019, operating expenses as percentage of revenues are anticipated to be less than 20%. Management expects to lower operating expenses as percentage of revenues in the long haul.

Management expects to generate free cash flow of approximately $700 million for fiscal 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Qorvo has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Qorvo has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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