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Why Is Qorvo (QRVO) Down 16.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Qorvo (QRVO - Free Report) . Shares have lost about 16.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Qorvo Q4 Earnings Beat Estimates, Updates Guidance on Huawei Woes

Qorvo delivered fourth-quarter fiscal 2019 non-GAAP earnings of $1.22 per share, surpassing the Zacks Consensus Estimate of $1.06 per share. The figure also jumped 14% from the year-ago quarter.

Revenues on a non-GAAP basis increased 2.5% year over year to $680.9 million. Moreover, the figure was slightly above management’s guidance of $660 million and $680 million. However, the top line lagged the Zacks Consensus Estimate of $690 million.

The results can be attributed to improved progress in IDP and stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers.

Quarter Details

Segment-wise, Mobile Products (MP) revenues were $443 million. The segmental revenues were aided by robust demand in China and Korea.

Infrastructure and Defense (IDP) revenues grew double digit year over year to $238 million, marking 12th consecutive quarter of growth. The year-over-year increase can primarily be attributed to robust growth in the company’s wireless connectivity, improvement in base station solutions and robust 5G infrastructure market demand.

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.

On May 6, 2019, Qorvo acquired Active-Semi International, Inc. with an aim to strengthen its portfolio of programmable analog and mixed signal power offerings. The company pursued the deal on account of Active-Semi’s strength in power efficient analog and mixed signal solutions that enable users to accelerate time to market and reduce total cost of ownership. In fact, the company anticipates the buyout to bolster its addressable markets by approximately $3 billion.

The company also recently enhanced 5G infrastructure solutions portfolio with industry’s first stand-alone ET PMIC that is “capable of modulating the power supply at 100 MHz for 5G New Radio (NR) operation.”

Notably, Qorvo sampled BAW-based 5G antennaplexer solutions to offer customers to utilize antenna architectures for 5G devices.

Operational Details

Non-GAAP gross margin expanded 20 bps from the year-ago quarter to 48.2%. This was primarily due to favorable product mix.

Non-GAAP operating expenses as percentage of revenues contracted 20 bps on a year-over-year basis to 23.6%. Consequently, non-GAAP operating margin expanded 10 bps from the year-ago quarter to 24.6%.

Balance Sheet & Cash Flow

As of Mar 30, 2019, cash and cash equivalents were $711 million compared with $649.7 million reported in the previous quarter. Long-term debt was $919.3 million as compared with $714.4 million at the end of the previous quarter.

Net cash provided by operating activities was $187.3 million down from $333 million in the previous quarter. Free cash flow during the reported quarter came in at $152 million.

During the quarter under review, the company repurchased shares worth $300 million under the share repurchase program.

Revised Guidance

On May 21, 2019, Qorvo updated guidance after Huawei Technologies, one of its prominent customers, is added to "Entity List" by BIS. Qorvo now anticipates first-quarter fiscal 2020 revenues to be in the band of $730 million to $750 million (mid-point of $740 million), down from its prior range of $780-$800 million (mid-point of $790 million). It suggests a decline of 6.3% considering the mid-point.

Non-GAAP earnings per share have been forecast to be $1.15 per share at the mid-point, down from the previous guidance of $1.30 per share. However, non-GAAP gross margin is now anticipated be 45.5%, compared with the previous predicted range of 45-45.5%.

Moreover, Qorvo anticipates second-quarter fiscal 2020 revenues to be flat sequentially, considering no sales to Huawei. The uncertainty as to when the company will resume supply of its products to Huawei refrained it from issuing fiscal 2020 guidance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 5.45% due to these changes.

VGM Scores

At this time, Qorvo has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Qorvo has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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