On Tuesday, Wolfe Research reinforced its positive stance on Qorvo Inc (NASDAQ:QRVO), maintaining an Outperform rating and a $120.00 price target. The firm's endorsement follows Qorvo's Investor Day, during which the company outlined its new long-term financial model.
Qorvo, a provider of innovative RF solutions, has set ambitious goals for its future growth, targeting a long-term revenue compound annual growth rate (CAGR) exceeding 10%. This growth is expected to be propelled by a combination of mid-to-high single-digit expansion in its Advanced Connectivity Solutions (ACG) segment, with a System-on-Chip (SoC) addressable market (SAM) growth of 5%, and double-digit percentage increases in both its High Performance Analog (HPA) and Connectivity and Sensor Solutions (CSG) segments, each with around 20% SAM growth.
The company also aims to achieve gross margins (GMs) over 50%, attributing the anticipated improvement to a variety of factors including reduced capital intensity, enhanced factory efficiency, process advancements, and the benefits of economies of scale and product diversification. Additionally, Qorvo has set a target for operating margins (OpMs) to fall between 30-35%, which aligns with the peak operating margins of approximately 33.4% seen in fiscal year 2022. Historically, operating margins have typically ranged in the mid to high 20s.
Qorvo's strategy for margin expansion seems to hinge on an evolving product mix. The company has outlined plans to increase the proportion of its non-handset business to over 50% of its total revenue over time. This shift is part of Qorvo's broader strategy to diversify its revenue streams and reduce dependence on any single market segment.
In other recent news, Qorvo Inc has been the subject of an analyst note from Benchmark, which reduced the company's share target to $128 due to a mixed outlook. Despite the adjustment, Benchmark maintains a buy rating on Qorvo's shares.
The company notably surpassed expectations in the March quarter, primarily driven by increased activity from Samsung (KS:005930), its second-largest customer, and robust growth in its Defense and Aerospace sector. Qorvo reported revenues of $941 million, exceeding consensus estimates by $14 million, with a gross margin of 42.5% and earnings per share (EPS) of $1.39.
However, Qorvo's projections for the June quarter are less optimistic, with revenues estimated at approximately $850 million, significantly lower than the consensus estimate of $924 million. This anticipated decrease in sales and a contracting gross margin have led to a forecasted EPS of $0.60 to $0.80, with a midpoint of $0.70, falling short of the consensus expectation of $1.27.
Analysts attribute this expected downturn to the cyclical nature of new product launches by Qorvo's two largest smartphone clients within its Advanced Cellular Group (ACG), and the seasonal timing of large-scale Defense & Aerospace programs in the High-Performance Analog (HPA) business unit.
In a related development, Qorvo reported solid Q4 results and strategic expansions, including the acquisition of Anokiwave, which strengthened its defense and aerospace capabilities. The company expects modest growth in revenue and gross margin for fiscal year 2025. As part of its future strategy, Qorvo aims to retire short-term notes later this year and continue reducing its net inventory balance. Despite the challenges, Qorvo anticipates strong sequential growth in September, with a larger December quarter due to defense sector strength.
InvestingPro Insights
Following Wolfe Research's endorsement of Qorvo Inc, the latest metrics from InvestingPro paint a detailed picture of the company's financial landscape. Qorvo's management has been actively buying back shares, signaling confidence in the company's future. Additionally, while the company has faced challenges in profitability over the last twelve months, analysts are forecasting a return to profit this year. This aligns with Qorvo’s ambitious growth targets and strategy for margin expansion presented during their Investor Day.
The company's market capitalization stands at $9.66 billion, with a forward P/E ratio of 46.9, reflecting investor expectations of earnings growth. Despite a negative P/E ratio in the last twelve months, the company's gross profit margin remains strong at 40.12%, indicating efficient cost management relative to its revenues of $3.77 billion. Furthermore, Qorvo's liquid assets exceed its short-term obligations, providing financial stability and the ability to invest in strategic growth areas.
For investors seeking a deeper dive into Qorvo's financial performance and future prospects, InvestingPro offers additional insights and tips. There are 20 more InvestingPro Tips available for Qorvo, which can be accessed to gain a comprehensive understanding of the company's position and potential. Interested readers can take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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