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RF Micro Devices, Inc. Message Board

  • looking4adeal looking4adeal Nov 29, 2000 8:37 AM Flag

    Bull Market Report

    RF MICRO DEVICES LOOKS LIKE A
    BARGAIN

    Currently, the two most compelling values in the Bull Market
    Wireless Portfolio appear to be Qualcomn (QCOM, $83) and
    RF Micro Devices (RFMD,$19). Since we have discussed
    Qualcomn in this and recent issues, lets focus on RF
    Micro.

    Value is essentially the relationship between a
    stock=92s price and its expected future earnings stream.
    The consensus earnings projections for RF Micro for
    this and next year are $0.32 and $0.42, or 31% growth.
    Since the consensus 5-year annual growth projection is
    42%, we can infer that analysts expect significantly
    higher growth beyond the fiscal year ending March 2002.
    Actually, the math works out to be about 45% annual
    compou=
    nd growth between March 2002 and March
    2005.

    Currently, RF Micro trades at a Price-to-Earnings (PE)
    multiple of 67. However, a better measure of value is the
    firm=92s PEG (PE divided by Growth), which is 1.58. In
    comparison, Qualcomn trades at a PEG of 1.8=
    8 and Nokia
    (NOK, $42) trades at 2.13.

    So what is a
    reasonable PEG for RF Micro? Well, given the multiples we
    92ve
    seen among other wireless stocks, we think it=92s
    reasonable to expect =
    the
    stock to trade at a PEG of
    around 2, which implies a $38 stock price
    on=
    e
    year from now. The stock currently trades for less
    than $20.

    So why is RF Micro such a bargain? We
    see four reasons for this:

    First, size is an
    important consideration these days. RF Micro has a
    $=
    3.3
    billion market cap compared to the industry average of
    $7.2 billion.
    Since RF Micro is relatively small,
    it may be highly dependent on a sma=
    ll
    number
    of customers. Indeed, RF Micro is very dependent on
    Nokia, whic=
    h
    accounts for more than half of
    sales. Recently, RF Micro has been
    diversifying its
    customer base by increasing its business with
    other
    important wireless players, such as Qualcomn and Motorola
    (MOT, $21).

    Second, overestimated handset demand
    has led to an abundance of
    inventories at some
    manufacturers, causing RF Micro to lower its
    foreca=
    sts
    for component demand in the current quarter. The
    stock price dove 38%
    after the warning on Oct. 18
    (to $14.25), but has since gained 46%.

    Third,
    delayed launches of more-advanced cellular phones have
    slowed sa=
    les
    of some of RF Micro's newer
    products.

    Fourth, demand in Korea is still uncertain. Sales to
    Korea represent l=
    ess
    than 7% of the overall
    mix, down from 15% just a few quarters ago.
    Kor=
    ean
    sales won't make or break RF Micro, but they might
    limit the growth ups=
    ide.

    We expect a return
    to normal growth for RF Micro early next year.
    The
    market overacted to the earnings warning and provided an
    outstanding
    buying opportunity in mid-October. RF Micro has carved a
    very nice nic=
    he
    for itself by becoming a major
    supplier of power amplifiers, which are
    essential
    components in all cell phones. The company's
    unique
    manufacturing process gives it a competitive advantage. We also
    love t=
    he
    short action, which has soared from
    1.6 million shares in May to 16.6
    million shares
    in October, almost 275% of average daily volume.
    Short
    sellers need to eventually buy the stock to close out
    their position,
    giving this stock a lot of upside
    potential. RF Micro Devices looks li=
    ke
    a compelling
    value two quarters away from fruition.

 
RFMD
16.590.00(0.00%)Dec 31 4:00 PMEST