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Why Qorvo May Still Look Good despite Weak Guidance

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Analyst ratings for Qorvo after lowered its 3Q16 guidance

In the previous part of this series, we discussed how Qorvo (QRVO) expects to report lower revenues in the final two quarters of fiscal 2016 due to weak demand for Apple’s (AAPL) newer iPhones. However, many analysts have maintained a “Buy” rating for the stock as the company still shows strength in various areas. Moreover, the sales of other Apple products have not been affected.

Canaccord Genuity analyst Michael Walkley has maintained a “Buy” rating for Qorvo but has reduced the price target for the stock from $77 to $62. Some factors that would play well for Qorvo is its strong revenue growth, including high gross margin, low debt levels, and strong operating cash flow, which should allow it to withstand near-term headwinds.

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Qorvo’s profitability

Looking at the fiscal 2Q16 earnings, the company reported a revenue growth of 95.3% YoY (year-over-year), which is way higher than the industry average of 9.1%, according to TheStreet Ratings. The company’s gross margin for the period stood at 40.8%. However, its net profit margin is way below the industry average at 0.63% in fiscal 2Q16, as its operating expenses have increased significantly.

Qorvo’s financial position

Qorvo has a debt-to-equity ratio of 0.01, which is way below the industry average, indicating that the company has lower debt obligations. Moreover, it has a quick ratio of 1.86, indicating that it has almost twice the liquidity to meet its short-term debt obligations. The company also increased its operating cash flow by 187.5% YoY to $168.8 million in fiscal 2Q16.

Low debt and high cash flow indicate that the company can invest in future growth. But let’s look more specifically at why the future growth prospects for Qorvo makes its stock a “Buy.”

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Future growth prospects for Qorvo

Qorvo’s new RF (radio frequency) Fusion front-end solutions would support OEMs’ (other equipment manufacturers) next-generation flagship devices. Qorvo’s RF Flex solutions are also ideal for 4G (fourth generation) reference designs as they support superior device performance and design flexibility. Moreover, China’s (MCHI) LTE (long-term evolution) deployment is expected to generate a huge demand for content. Even Qualcomm (QCOM) is eyeing a Chinese LTE transition to boost growth.

Qorvo: a drive-by company overview

Qorvo was formed on January 1, 2015, with the merger of TriQuint Semiconductor and RF Micro Devices. The combined company manufactures RF systems such as filters, power amplifiers, and antenna switches for wireless devices, broadband infrastructure, and aerospace and defense.

In the next part of this series, we’ll look at the impact of iPhone sales on another key Apple supplier, Cirrus Logic (CRUS).

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