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Qorvo (QRVO) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

Qorvo, Inc. QRVO is set to report first-quarter 2020 results on Aug 1. Notably, the company surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive earnings surprise of 14.6%.

Qorvo, Inc. Price and EPS Surprise

 

Qorvo, Inc. Price and EPS Surprise

Qorvo, Inc. price-eps-surprise | Qorvo, Inc. Quote

Past-Quarter Performance

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

Revenues on a non-GAAP basis increased 2.5% year over year to $680.9 million. However, the top line lagged the Zacks Consensus Estimate of $690 million.

What to Expect in Q1

Qorvo recently updated first-quarter fiscal 2020 outlook.

The company 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.

On May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. and 68 of its affiliates to the “Entity List” maintained by U.S. Department of Commerce.

This decision bars Qorvo from supplying products to Huawei and its affiliates, which compelled the company to trim revenue guidance. This dependence on Huawei is anticipated to weigh on the company’s performance in the upcoming quarterly results and the days ahead.

The Zacks Consensus Estimate for first-quarter earnings is pegged at $1.15 per share, unchanged for the last 30 days. The figure indicates growth of 19.8% from the year-ago reported figure. The Zacks Consensus Estimate for revenues stands at $740.3 million, suggesting an improvement of 6.9% from the year-ago reported figure.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

We believe solid demand of Qorvo’s performance-tier for RF Fusion based solutions will aid the to-be-reported quarter’s top line. Results are also likely to benefit from antenna tuning, discrete components and Bulk Acoustic Wave (BAW) based multiplexers.

Moreover, robust growth in company’s wireless connectivity, improvement in base station solutions and robust 5G infrastructure market demand is expected to positively impact the to-be-reported quarter’s results.

Further, strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications) is another positive. Rapid adoption of GaN for high-power applications, radars and other electronic warfare products are anticipated to drive the to-be-reported quarter’s revenues.

The company 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.”

Further, Qorvo augmented shipments of 5G massive MIMO infrastructure solutions to various OEMs. The company also secured new design wins across all sub-6 GHz 5G frequency bands. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well for the upcoming quarterly results.

Notably, the company sampled BAW-based 5G antennaplexer solutions that enable customers to utilize antenna architectures for 5G devices.

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

In the quarter under review, Qorvo acquired Active-Semi International, Inc. with an aim to strengthen its portfolio of programmable analog and mixed signal power offerings.

In fact, the company anticipates the buyout to bolster its addressable markets by approximately $3 billion. Post the acquisition, financials of Active-Semi will be reported under Qorvo’s Infrastructure and Defense Products (IDP) operating segment.

In fourth-quarter fiscal 2019, MP revenues came in at $443 million. Mobile Products revenues in the first quarter are expected to be up sequentially and year over year, aided by robust demand in China and Korea.

Meanwhile, IDP revenues grew double digit year over year to $238 million, marking the 12th consecutive quarter of growth.

In this scenario, we believe the latest deal can be considered as an effort to strengthen IDP segment in to-be-reported quarter. Management expects IDP revenues to grow double-digit year over year and sequentially, on the back of Active-Semi acquisition.

We also note that the buyout will aid to the company to enhance its competitive position against peers in power solutions market like Analog Devices, CREE, among others.

However, customer concentration, particularly from Apple AAPL and Huawei remains a significant headwind for Qorvo.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Qorvo has a Zacks Rank #2 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation LMT has an Earnings ESP of +2.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.82% and a Zacks Rank #3.

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