'Healthy' Chinese Smartphone Market Bodes Well For Qorvo, KeyBanc Says In Upgrade

Recent firsthand checks within Asia's smartphone supply chain continue to show positive demand trends in the Chinese smartphone market, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc's Michael McConnell upgraded Qorvo Inc QRVO from Sector Weight to Overweight with a new $95 price target.

The Thesis

Feedback from Asian companies that contribute components to the smartphone sector suggests China's smartphone market remains "healthy" and expanded 10-15 percent in the second quarter compared to the first, McConnell said in an industrywide report.

Smartphone demand in China improved in April and demand in May was particularly strong, the analyst said, projecting that the momentum will continue into the third quarter.

Similar feedback suggests Qorvo is taking advantage of the strength in China and likely gained market share at the expense of Skyworks Solutions Inc SWKS's market share loss at Chinese firms like Huawei, Oppo and Vivo, McConnell said. Qorvo is likely to see slightly better-than-normal seasonality in the bottom half of 2018, he said. 

Qorvo stock is up around 20 percent since the start of 2018, while the broader semiconductor index is up just 6 percent, the analyst said. Qorvo shares continue to trade at a favorable valuation of 11 times fiscal 2020 EPS estimates of $7.40, he said. KeyBanc's $95 price target is based on a 13 times multiple on 2020 EPS and is justified due to strength in China and savings from the reduction of $579 million in debt, McConnell said. 

Price Action

Qorvo shares were trading up 4.42 percent at $80.86 at the time of publication Thursday morning. 

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