The increased adoption of 5G technology in several technology areas, such as cloud computing, Internet of Things (IoT), Artificial Intelligence (AI), Virtual reality (VR), and Augmented Reality (AR) have been spurring the demand for 5G solutions globally. Currently, the industry enjoys favorable investor sentiment, as evidenced by the Vanguard Communication Services ETF’s (VOX) 67.8% returns over the past year, compared to the S&P 500’s 52.4% gains over this period.
Given the increased speed and connectivity offered by 5G, companies are increasingly investing in the development of 5G core services. Also, with consumers spending more time at home, a substantial increase in the use of phones and other connected devices should also lead to increased demand for 5G products. The global market for 5G Technology is expected to grow at a CAGR of 70.8% over the next four years to reach $700 billion by 2025.
Because 5G technology adoption is going mainstream quickly, we think it could be wise to bet now on Qorvo, Inc. (QRVO) and Cirrus Logic, Inc. (CRUS) because they are well positioned to capitalize on the trend.
Qorvo, Inc. (QRVO)
Founded in 1957, QRVO develops and sells core technologies and radio frequency (RF) solutions to the mobile, infrastructure, defense/aerospace and IoT markets. It sells its products and services directly to equipment and design manufacturers and through a network of sales representative firms and distributors.
In March, QRVO increased shipments of its RF Fusion20 portfolio that provides a complete and highly integrated RFFE (RF front-end) solution that encompasses all major 5G and 4G bands. This will help QRVO in providing enhanced performance and connectivity to its customers.
Also in March, the company introduced a new QPG6100 communications controller for IoT end devices that features the company’s ConcurrentConnect technology. This smart home device controller will enable the company to offer seamless connectivity to its customers and should inspire more innovative developments in the smart home.
QRVO’s revenue increased 26% year-over-year to $1.09 billion in the fiscal third quarter, ended January 2, 2021. Its gross profit grew 39.1% from its year-ago value to $595.6 million, while its net income increased by 61.5% year-over-year to $356.7 million over the period. The company’s EPS increased 65.6% from its year-ago value to $3.08.
A consensus EPS estimate of $2.16 for next quarter, ending June 30, 2021, represents a 44.0% improvement year-over-year. The $1.04 billion consensus revenue estimate for the quarter ended March 30 represents a 32.1% increase from the same period last year. The stock has gained 133.1% over the past year.
QRVO’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
QRVO has an A Grade for Growth and Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #26 of 98 stocks.
To see additional POWR Ratings for Value, Momentum, Sentiment, and Stability for QRVO, click here.
Cirrus Logic, Inc. (CRUS)
CRUS is a semiconductor company that manufactures and sells analog and mixed-signal integrated circuits (IC’s). Its products are both portable and nonportable and are marketed through a direct sales force, external sales representatives, and distributors.
Last month, CRUS introduced its boosted amplifier, called CS35L45, that provides its customers with a richer and more immersive audio experience versus smartphones, tablets and mobile gaming devices. Since there has been a significant uptick in high quality speaker usage in recent years, this product launch should help the company grow its revenue substantially.
In its fiscal third quarter, ended December 26, 2020, CRUS’ non-GAAP net income increased 49.3% year-over-year to $127.76 million. Its non-GAAP operating income increased 54.4% from its year-ago value to $145.94 million, while it reported a non-GAAP operating profit of 30% compared to 25.3% in the prior year quarter. The company’s non-GAAP EPS increased 51.1% year-over-year to $2.13.
Analysts expect CRUS’ revenue for the quarter ended March 30, 2020 to be $302.47 million, representing 8.3% year-over-year growth. The company’s $0.60 consensus EPS estimate for the next quarter represents a 13.2% improvement year-over-year.
It is no surprise that CRUS has an overall A grade, which indicates a Strong Buy in our proprietary rating system. The company is rated a B for Growth, Value, Sentiment, and Quality. In the same industry, it is ranked #5.
In total, we rate CRUS on eight different levels. Beyond what we’ve stated above, we have also given CRUS grades for Momentum and Stability. Get all the CRUS ratings here.
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QRVO shares were trading at $186.73 per share on Thursday afternoon, down $2.48 (-1.31%). Year-to-date, QRVO has gained 12.31%, versus a 10.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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