This Discounted Stock Is Driving 21st Century Device Communication: Argus Research

A bet on the growing demand for radio frequency solutions spanning several markets and a value discount to competitors has made Argus Research bullish on Qorvo, Inc. QRVO.

The Qorvo Analyst: Jim Kelleher initiated coverage of Qorvo with a Buy rating and $225 price target. 

The Qorvo Takeaways: The drivers of the bullish stance include Qorvo’s history of a strong growth-by-acquisition strategy that has led to a substantial number of synergistic benefits; its position as a leader in front-end RF technology; and its discounted value, Kelleher said in a note. 

Qorvo has multiple growth opportunities in accelerating areas such as IOT, data communication, force-sensing solutions and biotechnology, the analyst said.

Since the company’s inception in 2015 — resulting from the merger of RF Micro Devices and Triquint Semiconductor — Qorvo has executed over five strategic acquisitions to help it maintain a strong presence in the mobility, infrastructure and defense industries, Kelleher said. 

The company’s acquisitions have helped Qorvo build a “multiplicity” of RF devices, Kelleher said.

It is also important to note that despite a large number of acquisitions, Qorvo’s debt sits at a mere $1.7 billion, while its cash holdings are $1.4 billion, and reported 2021 revenue is $4.02 billion, the analyst said. 

He expects Qorvo to maintain its grip on the increasingly important front-end RF market.

Front-end RF technology includes several components that convert an input RF signal into an intermediate signal devices can use, Kelleher said.

Demand for front-end RF technology is driven by the increase in mobile devices worldwide, increased content viewed per mobile device, increased machine-to-machine interaction from growing IOT adoption, and growth in communications and connectivity related to AI, AR/VR and autonomous and robotics factors, the analyst said.

Notably, data from analysis firm Yole Development shows that in 2018-2019, Qorvo held a leading share in front-end RF technology across Apple, Samsung, Huawei, Oppo and Xiaomi smartphones, putting Qorvo ahead of competitors Murata, Skyworks, Broadcom and Qualcomm, according to Rosenblatt.

Regarding the $225 price target, Kelleher said Qorvo is undervalued relative to its peer group.

Despite revenue and EPS growth alongside peers, and occasionally at a materially higher rate, Qorvo trades at a discount to its peers based on absolute P/E, relative P/E, P/E growth, P/S and EV/EBITDA, the analyst said.

If he were to value Qorvo right now using peer multiples, Kelleher said the company should be sitting at $280/share, his forward-looking model would price the company’s shares in the mid-$300s. The $225 target results from a risk-adjusted total return in excess of the forecasted S&P 500 return, the analyst said. 

QRVO Price Action: Shares of Qorvo were down 1.05% at $193.60 at last check Thursday.