On Wednesday, BNP Paribas (OTC:BNPQY) Exane updated its stance on Qorvo Inc (NASDAQ:QRVO) shares, downgrading the stock from Outperform to Neutral, while setting a price target of $80.00. The firm's decision comes in light of Qorvo's significant exposure to the Chinese Android market, which is currently facing increasing structural challenges, particularly in the mid-tier segment.
The analyst from BNP Paribas Exane expressed concerns about the lack of demand catalysts and the unclear timeline for a gross margin (GM) recovery for Qorvo. The company's long-term GM target of 50% is now seen as more difficult to achieve, prompting the firm to adopt a more cautious stance on the stock.
Despite Qorvo's shares dropping 16% after hours to $84, BNP Paribas Exane anticipates that valuation support is likely to emerge around the new price target of $80. This assessment is based on a consistent 15 times multiplier of the company's projected non-GAAP earnings per share for the calendar year 2025.
In summary, the downgrade reflects the analyst's view that Qorvo's growth prospects are hampered by the competitive pressures in the Chinese smartphone market, which is a key area for the company. The new price target suggests a modest downside from the after-hours trading price, indicating a tempered outlook for the stock's performance.
In other recent news, Qorvo Inc. reported better-than-expected fiscal second quarter results, with adjusted earnings per share of $1.88 and revenue of $1.05 billion. However, the company's outlook for the current quarter fell short of expectations, forecasting third quarter revenue of approximately $900 million and adjusted earnings per share between $1.10 and $1.30.
Piper Sandler, Goldman Sachs (NYSE:GS), and Barclays (LON:BARC) have all adjusted their price targets for Qorvo, while Raymond James downgraded the stock from Outperform to Market Perform. These adjustments come in light of changes in the smartphone market and a shift in Qorvo's product mix.
Despite these challenges, Qorvo is implementing measures including factory consolidation and operating expense reductions, and now expects full-year fiscal 2025 revenue and gross margin to be slightly down compared to fiscal 2024. These are among the recent developments at Qorvo.
InvestingPro Insights
Adding to the analysis of Qorvo's market position and challenges, recent data from InvestingPro provides additional context to the company's financial situation. Despite the concerns raised by BNP Paribas Exane, Qorvo's revenue growth remains strong, with a 25.74% increase in the last twelve months as of Q1 2023. This growth is even more pronounced on a quarterly basis, with a 36.17% increase in Q1 2023.
However, aligning with the analyst's concerns about profitability, InvestingPro data shows that Qorvo has not been profitable over the last twelve months. This is reflected in the negative basic and diluted EPS of -$0.27. On a more positive note, InvestingPro Tips indicate that analysts predict the company will be profitable this year, which could potentially alleviate some of the concerns raised in the downgrade.
The company's financial health appears stable, with InvestingPro Tips highlighting that Qorvo operates with a moderate level of debt and its liquid assets exceed short-term obligations. This financial stability could provide some cushion as the company navigates the challenges in the Chinese Android market.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Qorvo, providing a deeper understanding of the company's financial position and market prospects.
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