Defense And Automotive SATCOM Pipelines Will Open Future Opportunities

Key Takeaways

• Diversification into defense and aerospace, along with growing automotive pipelines, supports multiyear revenue growth and stability.
  
• Strategic restructuring, including legacy exits, will enhance operational efficiency and improve net margins.
  
• Dependence on a major customer and exiting lower-margin programs risk revenue stability amidst tariff uncertainties and required strategic restructuring.

Catalysts

Engages in development and commercialization of technologies and products for wireless, wired, and power markets worldwide.

• Qorvo's growth is driven by content growth with its largest customer, including a new envelope tracking power management solution. This supports multiyear content opportunities, impacting future revenue positively.
  
• The expansion in defense and aerospace is a key revenue driver, with a sales funnel exceeding $5 billion. Increased defense spending globally presents a multiyear tailwind for revenue and diversification.
  
• The ultra-wideband sales funnel for automotive has grown to over $2 billion, showcasing a strong pipeline that is likely to boost revenue in the coming years.
  
• Strategic exits from legacy Android programs and restructuring, including facility closures, are expected to improve net margins and operational efficiency.
  
• Next-generation silicon Ku-band SATCOM Beamformer ICs and a growing presence in infrastructure projects like DOCSIS 4.0 deployments are expected to provide additional revenue streams, supporting future earnings growth.

Qorvo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qorvo's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $501.3 million (and earnings per share of $5.25) by about May 2028, up from $27.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $559.1 million in earnings, and the most bearish expecting $268.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, down from 216.8x today. This future PE is lower than the current PE for the US Semiconductor industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 2.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Qorvo Future Earnings Per Share Growth

Risks

• Qorvo's significant reliance on their largest customer, which represented 43% of total revenue, poses a risk if this dependency changes, potentially impacting overall revenue stability.
  
• The decision to exit lower-margin Android programs, although strategic, will result in the intentional reduction of $150 million to $200 million in revenue, affecting topline growth.
  
• The unpredictability surrounding global tariffs, particularly those related to trade with China, continues to pose a risk, potentially increasing costs in COGS, OpEx, and CapEx, which could negatively affect net margins.
  
• The need for Qorvo to execute strategic actions, such as facility closures and workforce reductions, could lead to restructuring costs and operational disruptions adversely impacting earnings.
  
• The potential for indirect tariff-related impacts and global economic uncertainty could lead to broader demand effects, which could adversely influence revenue and profitability.

Valuation

• The analysts have a consensus price target of $84.928 for Qorvo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $128.0, and the most bearish reporting a price target of just $60.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $501.3 million, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $62.65, the analyst price target of $84.93 is 26.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.