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Can Qorvo (QRVO) Beat Earnings on Better Operating Model? - Analyst Blog

Zacks Equity Research
Updated

Leading semiconductor manufacturer Qorvo, Inc. QRVO is scheduled to report its first-quarter fiscal 2016 results after the closing bell on Jul 29. In the last reported quarter, adjusted earnings comfortably exceeded the Zacks Consensus Estimate by 15 cents. Let’s see how things are shaping up for this announcement.

Key Factors in the First Quarter

With a broad product portfolio and an improved operating model, Qorvo has created new revenue-generating opportunities in three large global markets, namely, mobile devices, network infrastructure and aerospace/defense.

Qorvo is leveraging the industry’s most comprehensive product portfolio, advanced packaging technologies, and system-level expertise to quickly introduce highly integrated front-end solutions that simplify and accelerate the implementation of multimode, multi-band 4G smartphones and tablets. These new RF Fusion front-end solutions showcase Qorvo's ability to help leading OEMs to launch their next-generation flagship devices more quickly.

Qorvo's RF Flex solutions have been selected to support multiple upcoming leading 4G reference designs. RF Flex delivers best-in-class current consumption to enable superior device performance and leading-edge design flexibility to simplify regional customization. These are likely to generate higher revenues for the company and improve its bottom line.

In addition, Qorvo has brought all the critical radio frequency (RF) components that are essential for fabricating mobile devices under a common platform, thereby creating an undisputed market leader with a diversified product portfolio. These include power amplifiers (PAs), power management integrated circuits (PMICs), antenna control solutions, switch-based products and premium filters. With global smartphone users predicted to triple to 5.6 billion by 2019, the company is expected to generate a steady stream of revenues to fuel its growth engine.

The company also serves the infrastructure and defense/aerospace industries with advanced gallium nitride (GaN) solutions for additional applications, and foundry services to support radar, next generation base stations, optical communications and the Internet of Things. As the aerospace sector gradually picks up steam, orders are likely to increase as well, thereby filling the coffers of the company.

Moving forward, Qorvo is expected to leverage the core strengths of both the merged companies, namely TriQuint Semiconductor, Inc. and RF Micro Devices Inc., to rapidly translate research and development advances into large scale production. In addition, synergistic benefits from the merger are likely to increase profitability through economies of scale and mutual sharing of manufacturing expertise, research and development costs and adjustment of staffing expenses.

The merger is expected to generate $75 million of cost savings in the first year of its operation, followed by another $75 million in the second year. The deal is also expected to be accretive to non-GAAP earnings in the first full fiscal year of its operation. With Qorvo beginning its operations as a standalone company from January this year, there is enough scope for synergistic growth in the soon-to-be-reported quarter.

Earnings Whispers

However, despite the inherent strengths, our proven model does not conclusively show that Qorvo is likely to beat earnings this quarter as it does not possess the key ingredients for a success recipe.

Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in-line earnings for the shares.

Zacks Rank: Qorvo’s Zacks Rank #3 (Hold) combined with a 0.00% ESP reduces the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.  

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

FTI Consulting, Inc. FCN, earnings ESP of +2.17% and Zacks Rank #1.

Electronic Arts Inc. EA, earnings ESP of +22.22% and Zacks Rank #1.

Diana Containerships Inc. DCIX, earnings ESP of +200.00% and Zacks Rank #1.


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