Here Is Why You Should Dump Qorvo (QRVO) From Your Portfolio

On Dec 13, Qorvo Inc. (NASDAQ:QRVO) was downgraded to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The downgrade can primarily be attributed to Qorvo’s unimpressive revenue guidance for the next two quarters.

Management cited delayed product cycle at its largest customer to be one of the major reasons that will hurt Mobile Products (MP) revenues in the current quarter. Moreover, fourth-quarter fiscal 2018 revenues are projected to decline sequentially.

Additionally, Qorvo anticipates gross margin to be flat sequentially in the current quarter, primarily due to unfavorable product mix.

Qorvo’s stock has gained 28.4% year to date, slightly outperforming the 23.7% rally of its industry.

Mix Improvement Not Imminent

We note that consumer preference for mid-tier phones, which have lower dollar content, in India and China are affecting Qorvo’s growth trajectory. Management doesn’t expect 50% gross margin, while exiting fiscal 2018, primarily due to the aforementioned reason.

However, Qorvo anticipates gross margin expansion to restart in fourth-quarter fiscal 2018 and continue throughout the next fiscal driven by improving mix, ongoing productivity efforts and increasing fab utilization.

Qorvo expects revenues to decline less than seasonally over the December-March time frame. In the second half, management expects double-digit year-over-year growth, with gains on new mobile platforms and continued strong IDP growth.

Operating expenses in dollar terms are also expected to decline from fiscal 2017 level.

Estimates Remain Steady

The Zacks Consensus Estimate for fiscal 2018 and fiscal 2019 has been steady at $5.47 and $6.43, respectively.

Moreover, the Zacks Consensus Estimate for revenues is currently pegged at $3.10 billion for fiscal 2018 and $3.37 billion for fiscal 2019.

Other Stocks to Consider

Intel Corporation (NASDAQ:INTC) , NVIDIA Corporation (NASDAQ:NVDA) and Texas Instruments (NASDAQ:TXN) are stocks worth considering in the broader technology sector. While Intel and NVIDIA sport a Zacks Rank #1 (Strong Buy), Texas Instruments has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long term earnings growth for Intel, NVIDIA and Texas Instruments is currently pegged at 8.42%, 10.25% and 9.60%, respectively.

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