Qorvo, Inc. QRVO announced the pricing of $350 million aggregate principal amount of 4.375% senior notes due 2029. The company increased the offering size from the previously announced principal amount worth $300 million. It anticipates closing the offering on Sep 30, 2019, subject to certain customary conditions.
These additional notes once placed will be an unsecured senior liability of Qorvo. Notably, interest for these additional notes will be paid semi-annually.
The notes have been offered to qualified institutional buyers under Rule 144A, which is exempted from registration requirements under the United States Securities Act of 1933. The company intends to utilize the proceeds of additional notes to address general corporate purposes. We believe that these notes will provide financial flexibility to the company and fuel long-term growth.
Stock Performance & Cash Position
Shares of Qorvo have returned 26.7% year to date, significantly outperforming the industry’s rally of 21.5%. The outperformance can primarily be attributed to robust adoption of the company’s performance-tier for RF Fusion-based solutions, antenna tuning, discrete components and BAW-based multiplexers.
As of Jun 29, 2019, cash and cash equivalents were $629.6 million compared with $711 million reported in the previous quarter. Long-term debt was $1.02 billion compared with $919.3 million at the end of the previous quarter.
Net cash provided by operating activities was $257 million, up from $187.3 million in the previous quarter. Free cash flow during the reported quarter came in at $207 million.
We believe that the senior notes offering will lower Qorvo’s cost of capital, consequently strengthening balance sheet and growth initiatives.
Bottom Line
Qorvo has an excellent earnings surprise history. The company has surpassed the Zacks Consensus Estimate in the prior four quarters, with an average positive surprise of 12.6%. We expect the company to record earnings growth 20.3% in 2021.
The company is benefiting from robust adoption of its wireless connectivity and base station solutions. Further, solid demand for Gallium Nitride (GaN) integrated front end modules for high-power applications bode well over the long haul.
However, weakness in flagship smartphone product volumes and softness in China domestic market will weigh on the stock in the near term. Further, customer concentration, particularly from Apple AAPL on account of lesser-than-expected demand of latest iPhones is a significant headwind.
Zacks Rank & Stocks to Consider
Currently, Qorvo carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Alibaba Group Holding Limited BABA and Synopsys, Inc. SNPS. Both the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Alibaba and Synopsys is currently pegged at 28% and 12%, respectively.
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