Here's Where to Buy Qorvo Following Major Activist Investor News
The Apple, Samsung connectivity provider has seen its shares jump and here's where I plan to buy into the rally.
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The stock had been down more than 50% from its mid-July peak when it bottomed in early December. Even at Thursday night's close, the shares were still down almost 44% from that lost summer apex.
I am, of course, writing about Qorvo QRVO, which is an Apple AAPL, Samsung and global provider of connectivity and power solutions. The firm is a well-known supplier of cellular RF solutions to manufacturers of smartphones, tablets, laptops, wearables and other mobile devices.
What happened is that, back in October, the firm reported its fiscal second quarter for the period ending September 28. Adjusted earnings were OK, on a GAAP basis, though profitability failed to meet expectations and revenues for the quarter contracted 4.5% year over year. Oh, and the guidance was awful. The firm guided the fiscal third quarter (to be reported on January 28) toward an adjusted EPS of $1.10 to $1.30. Wall Street had been looking for something close to $1.95 at the time. Currently, Wall Street's consensus after 19 of 19 analysts cut their estimates is for $1.21 versus a year-ago comparison of $2.10. Revenue "growth" is seen at -15%.
A Sight for Sore Eyes
What is that? It's news on Qorvo and the stock is jumping.
According to a Schedule 13-D filing with the SEC, activist investor Starboard Value (Starboard is an American hedge fund that separated from Cowan in 2011) had already taken a 7.7% stake in Qorvo and it stated that, in Starboard's belief, the shares are undervalued and represent an attractive investment opportunity.
The filing also states that Starboard, "May in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, engaging in communications with management and the Board of Directors of the Issuer, engaging in discussions with stockholders of the Issuer or other third parties about the Issuer and the Reporting Persons' investment, including potential business combinations or dispositions involving the Issuer or certain of its businesses, making recommendations or proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure, etc."
In short, Starboard Value is here to change the trajectory of this underperforming firm and is willing to take any number of actions to try to squeeze some increased value out of Qorvo's equity.
The Chart
Readers well know by now that I love when activist investors get involved in stocks that I own. I don't own this one, but that's only because I knew I was going to write an article, and I do not front-run my own articles.
It's been ugly. The gap down created back when those fiscal Q2 earnings and that horrific guidance was issued were released is visible in orange. It came after the stock, already selling off, had developed a bearish flag pattern.
Fortunately for shareholders, the stock bottomed in early December, which was the second drop in a double-bottom pattern of bullish reversal. This upside pivot for this pattern is an even $72 and has now clearly been broken as the shares are trading with a $78 handle ahead of the U.S. open. Relative strength has been improving as has been the posturing of the daily MACD.
Get Involved?
Not on the pre-opening or opening gap up move. When I see some profit-taking? Very possibly. Depending on how well Starboard massages the firm's shareholders and board of directors, a 38.2% Fibonacci retracement of the July to December sell-off would take the shares up to $89.70. A fill of that gap left behind in late October will take the shares up to $98.90. Their risk? A third bottom. Both the 21-day EMA and the 50-day SMA have been retaken. That gets the swing crowd and at least some portfolio managers on board.
I don't think I will put a chunk down on this name, but I do expect to put a 1.5% to 2% slice of my most actively-traded portfolio in the name when I get that profit-taking inspired dip. The stock trades at just 15-times forward-looking earnings. The balance sheet is not perfect, but it's not awful and the current situation passes the Sarge test. This name with an activist behind it is investable and not just as pure speculation.
At the time of publication, Guifoyle was long AAPL.
