A month has gone by since the last earnings report for Qorvo (QRVO). Shares have lost about 2% 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 Q1 Earnings Beat Estimates, Revenues Rise Y/Y
Qorvo Inc. reported fourth-quarter fiscal 2021 non-GAAP earnings of $2.74 per share, which soared 74.5% on a year-over-year basis. The figure not only exceeded the company’s expectations of $2.42 but also surpassed the Zacks Consensus Estimate by 12.3%.
Revenues surged 36.2% year over year to $1.073 billion. Further, the top line outpaced the consensus mark by 2.95%. Moreover, the figure was above the higher end of management’s guided range of $1.025 billion to $1.055 billion.
Improvement in both Mobile Products (MP) and Infrastructure and Defense (IDP) contributed to the results. The company gained from broad-based demand in 5G handsets, Wi-Fi 6 devices and proximity awareness applications.
Accelerated deployment of 5G, the roll-out of Wi-Fi 6 and 6E technologies, and growing clout of precision location applications based on ultra-wideband (UWB) technology is favoring the company’s prospects.
Quarter Details & Recent Business Highlights
Segment-wise, MP revenues of $808 million exceeded the company’s expectations of $770 million and surged 45% on a year-over-year basis, on higher 5G content in smartphones.
During the fiscal fourth quarter, the company witnessed robust traction for its chips utilized in 5G smartphones. These offerings are highly integrated and high-performance solutions, which enable customers to reduce product footprint and accelerate products to market.
In mobile vertical, Samsung honored Qorvo with the Best Quality Award, recognizing its innovation and superior performance in support of Galaxy product family.
Additionally, the company has extended shipments of low-band, mid-/high- and ultra-high-band modules, and BAW-based antenna-plexers, which are witnessing accelerated adoption across leading smartphone OEMs.
Moreover, broad-based content gains across Wi-Fi 6 solutions, which are being implemented in leading tablets, smartphones, gateways, smart speakers, mesh networks, and virtual reality headsets, contributed to the fiscal fourth-quarter performance.
Also, Qorvo was selected by a leading provider of consumer IoT products to integrate UWB technology into a broad set of connected home devices in a bid to leverage its superior location accuracy, security and latency.
IDP revenues grew 14% year over year to $265 million on robust Wi-Fi demand. The improvement can also be attributed to momentum in deployment of Wi-Fi 6 solutions and robust 5G infrastructure market demand on improving buildout of 5G networks.
Margins in Detail
Non-GAAP gross margin expanded 300 basis points (bps) from the year-ago quarter to 52.6%. Non-GAAP gross margin was anticipated in the range of 50.5% to 51%. Better-than-expected gross margin can be attributed to better-than-expected price, lower manufacturing and inventory costs, which more than offset less favorable mix.
Non-GAAP operating expenses increased 14.6% year over year to $207.5 million. As a percentage of revenues, the figure contracted 370 bps from the year-ago quarter to 19.3%.
Non-GAAP operating income surged 70.2% to $357.2 million. Non-GAAP operating margin expanded 670 bps from the year-ago quarter to 33.3%. This can be attributed to gross margin expansion and lower operating expenses.
Balance Sheet & Cash Flow
As of Apr 3, 2021, cash and cash equivalents were $1.398 billion compared with $1.234 billion reported as of Jan 2, 2021. As of Apr 3, 2021, long-term debt was $1.743 billion, with “no material near-term maturities,” compared with $1.744 billion as of Jan 2, 2021.
Qorvo is undertaking several deleveraging steps to improve financial flexibility, on the heels of which, S&P upgraded the company’s credit rating to investment-grade in April, per management.
Also, the company stated that the “revolver is untapped.” Markedly, Qorvo had concluded the fiscal second quarter with unused $300 million unsecured revolver. Additionally, in fiscal third quarter management had noted that the weighted average maturity of the company’s debt is 2029.
Net cash provided by operating activities was $402.9 million, compared with $403.7 million in the prior quarter. Free cash flow during the reported quarter amounted to $325.5 million, compared with $367.6 million in the prior quarter.
During the fiscal fourth quarter, the company repurchased shares worth $175 million.
For first-quarter fiscal 2022, Qorvo anticipates revenues between $1.065 billion and $1.095 billion, with MP and IDP contributing $810 million and $270 million, respectively.
Strength in smartphone vertical, upgrades in 5G smartphones with increase in 5G content, and gains from consistent growth in 5G infrastructure, power management, 5G base stations, Wi-Fi 6 solutions and defense end-markets are anticipated to drive performance in first-quarter fiscal 2022.
Non-GAAP earnings are projected to be $2.45 per share (at the mid-point of the revenue guidance). Non-GAAP gross margin is anticipated to be 50%.
For calendar 2021, Qorvo expects 5G smartphones to double over 2020. Within 5G smartphones, the company estimates the RF content to increase $5 to $7 per phone in comparison to 4G, including in the mid-tier.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 12.78% due to these changes.
At this time, Qorvo has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Qorvo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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