Analysts from Brean Capital and Cannacord Genuity weigh in on semi-conductor company Qorvo Inc (NASDAQ:QRVO) and offshore drilling company Transocean LTD (NYSE:RIG). While Qorvo had a successful analyst day, Transocean’s industry continues to suffer from declining demand.
Analyst Mike Burton from Brean Capital weighed in on Qorvo following the company’s analyst day. The analyst is hopeful for the future of the semi-conductor company as management reinforced his positive expectations regarding the company’s growth and synergy for 2016. Burton reiterated a Buy rating with a price target of $70 for the stock. The analyst notes positive management sentiment regarding overall growth up to 2017, citing a growth model of 52.5% GM/33.5% OM, above consensus of 51%/31.5%. He also notes encouraging management perspective about the company’s “two main synergy opportunities: in-sourcing legacy TQNT products into the Company’s China facility($40-$50M annual run-rate savings coming 2H16) and in-house SAW filters.” Related, the analyst believes Qorvo can achieve its predicted model with leverage from “increasing RC complexity (highly integrated RF Fusion is fastest growing mobile category) and increased growth in IDP.”
Burton notes that Qorvo’s mobile segment is in line with forecasted growth rates, with management issuing positive guidance into the future. Related, the company presented a $1 billion market opportunity in two segments, Wifi and Diversity Receive, which are targets for the company’s first modules. The analyst believes that the company’s three largest customers, Apple, Samsung, and MediaTek, directly correlate with this opportunity. The analyst notes that management’s statement of “content growth on all the major marquee flagships for the next couple years,” directly relates to Apple, reassuring investors of the company’s shift to “multiplexers at the leading OEM (would benefit AVGO at that socket).” Similarly, he states that Samsung is the most promising opportunity for the company’s Diversity Receive and Wifi modules. Although the company did not participate in Samsung’s Gs6, the analyst believes that “we could start to see Qorvo products as early as the GS7.” Burton also believes that although the company achieved mediocre performance in its MediaTek LTE platforms relative to its competitors, the company will be gain share in the second part of MTK’s LTE Phase 2 rollout as well as in phase 3.
The analyst states that the company’s non-mobile IDP (Infrastructure and Defense Products) will become a more integral part of the company’s business, accounting for 18% of revenues in September, “through increasing organic growth and likely M&A.” The analyst believes Qorvo’s increased focus on growing sectors such as Optical, Connected Car, BTS PA, and Wifi will allow the company to target increased SAM. Related, management hopes to double the SAM in the next few years. The analyst also states that despite suffering from headwinds in China this year, its base-station market is set to recover at 10% q/q growth. Qorvo’s investments in GaN process technology also contribute to management’s guidance of overall growth.
The analyst is hopeful for investors, as the company prioritizes its shareholder returns. Following the company’s $1 billion share buyback program in September, the company announced a $1 billion senior note last week which offered to reorganize its capital structure. The analyst concludes “We believe investors remain concerned with Qorvo’s lumpy execution record and will be watching closely for certain milestones including: content-growth on Samsung’s GS7, share gains on upcoming MediaTek LTE platforms, solid attach rates at leading China OEMs, and consistent performance at Qualcomm.”
Overall, analyst Mike Burton has a 60% success rate recommending stocks with a 11.9% average return per recommendation. According to TipRanks’ statistics, out of the 9 analysts who have rated Qorvo in the last 3 months, 5 gave a Buy rating while 4 remain on the sidelines. The average 12-month price target for the stock is $68, marking a 21% upside from where shares last closed.
Analyst Alex Brooks of Cannacord Genuity recently commented on TransOcean LTD reiterating a Sell rating with a price target of $9 following the company’s Q3 earnings release earlier this month. She states that although Q3 earnings contained positive developments, the bad outweighs the good. Although the company reached cash neutrality this quarter through retiring its debt, renegotiating “two of the 4 Shell drill ships under construction”, decreasing its maintenance capital costs, and conducting good relations with customers who honored their existing contracts, the analyst believes the company’s future outlook is bleak. The analyst states that the company’s October fleet status report indicated a negative position in terms of revenue, citing a gross order intake of $292 million against revenues of $5.8 billion. She also cites weak outlook for rig utilization in 2016. Due to an over-supply of oil, the analyst believes that this outlook will not change even if the price of oil rises as rig day-rates in every class continue to remain low.
The analyst has adjusted her previous model, mainly by decreasing rig rates to $200k/day for ultra-deep-water units, incorporating the two Shell rigs she expected the company would cancel, and issuing a negative outlook on utilization. She states that a lack of industry moves to book more rig capacity in the upcoming year signal a lack of demand. Due to this adjusted model, the analyst anticipates negative earnings and increased losses which will continue into 2018. Brooks concludes her analysis by stating, “We continue to be negative on Transocean equity, as on every available earnings, asset or value metric the stock looks expensive: as an example, EV/EBITDA for 18E is now 18x. However, we are much less negative on the debt, particularly given the lack of refinancing needs for the next two years. Our target for the equity remains US$9 (SFr9.1), which is based on a multiple of EBITDA.”
Overall, analyst Alex Brooks has a 69% recommending stocks with a 20.4% average return per recommendation. According to TipRanks’ statistics, out of the 8 analysts who have rated Transocean LTD in the last 3 months, 6 gave a Sell rating while 2 remain on the sidelines. The average 12-month price target is $10.40, marking a 29% downside from where shares last closed.