Signals Mixed, But RF Stocks Still Attractive Into Earnings

Despite concerns over Samsung Electronics Co Ltd SSNLF weakness and Chinese smartphone saturation, Pacific Crest analyst John Vinh remains bullish on RF suppliers Qorvo Inc QRVO and Skyworks Solutions Inc SWKS. Chinese demand is picking up, Apple Inc AAPL is solid and the shift to LTE continues pushing forward.

Earnings
Pacific Crest sees slight upside to earning and guidance for both Qorvo and Skyworks. “We believe SWKS’ fundamentals remain the most robust, as we expect the company to benefit from its strong content position at Apple and incumbent position in an improving China smartphone demand environment,” Vinh explains. He adds that Wall Street has relatively low quarterly growth expectations for Skyworks (7.1 percent) compared to expectations for Qorvo (11.6 percent).

However, Vinh notes that Qorvo’s recent share price underperformance (-4.45 percent in Q2) and its easier year-over-year (Y/Y) Apple comps make Qorvo a compelling buy ahead of earnings as well.

Best fundamentals
Vinh sees Skyworks as the best-positioned semiconductor play to capitalize on the strong iPhone6/6+ demand that Pacific Crest sees carrying over to the second half of the year. In addition, Vinh believes that the continuing transition to 4G in China will drive improvement in Chinese demand going forward.

Pacific Crest has an Overweight rating on Skyworks and a $110 target for the stock.

Favorable risk/reward
Vinh is calling for a 10 percent increase in Qorvo’s content in the iPhone 6S refresh later this year. “Additionally, we see a favorable setup into the 2H given lower Samsung exposure and easier y/y comparison at Apple given TQNT’s share loss in 2014 in the iPhone 6,” Vinh adds.

Pacific Crest has an Overweight rating on Qorvo and an $85 target for the stock.