It’s in the nature of human ingenuity to constantly adapt technology, improve functionality and enhance its usefulness in our lives. The next generation of WiFi, 5G, meets that standard, and then some. The new tech brings us faster connections, lower latency, more efficient data transfers, and improved security – and it has been online for two years. Now it’s getting ready to expand.
Expansion will entail a major buildout, a densification of the physical infrastructure needed for the propagation of network signals. 5G features enhanced capabilities when compared to earlier generations of WiFi, but it also has one glaring weakness: significantly shorter signal range. We’re willing to accept that trade-off, but it does make the tower build-out a bottleneck on the way to full adoption of 5G coverage.
We’re beginning to get through that bottleneck. Around the world, major cities are putting public 5G systems online, and new smartphone lines are 5G enabled. And as we head into the 5G future, those companies that are fully invested in the boom will stand to gain.
Wall Street’s analysts have been scouting the field, and have found two stocks that haven’t fully priced in that boom – and so give investors opportunities to gain. Let’s take a closer look.
Radius Global Infrastructure (RADI)
The buildout of 5G, and its expansion outside of urban areas will require infrastructure – towers, transmitters, rooftop installations, all of the physical buildings that support the cell systems we depend on. Radius is, at heart, a real estate company, operating as a REIT, and buying up communications properties which it leases to operators. Radius operates in the US, and derives its income from leases on its properties.
Last year, Radius changed its name from Digital Landscape Group and moved its headquarters from the UK to the US. The move coincided with a shift in trading from the London Stock Exchange to the NASDAQ, and adoption of the new ticker symbol, RADI. The move was completed in October, and since then RADI shares have gained ~49%.
Cell towers and rooftop transmitter sites are considered ‘mission critical’ infrastructure in the wireless networking industry, and Radius’ revenues show it. The company reported $14 million in 3Q19, which grew 23% to $17.9 million in 3Q20.
Among the bulls is Credit Suisse analyst Sami Badri, who rates RADI an Outperform (i.e. Buy) along with a $19 price target. This figure indicates a 46% upside for the coming year. (To watch Badri’s track record, click here)
Backing his bullish stance, Badri writes: “We forecast RADI to grow revenues at ~21% CAGR through 2023E on a normalized basis… RADI’s discount compared to TowerCos is another key factor driving our bullish view. RADI’s net growth rate is fairly similar to TowerCos after considering churn and maintenance capex. Bearing in mind the long-dated lease terms and visibility/reliability of cash flows, we believe that the large gap in multiples between RADI and TowerCos is unwarranted and that RADI is likely to trade higher as its multiple increases over time to reflect its lower risk profile.”
It has been relatively quiet when it comes to other analyst activity. In the last three months, only 2 analysts have issued ratings. However, as they were both Buys, the word on the Street is that RADI is a Moderate Buy. Based on the $20 average price target, shares could climb ~54% higher in the next twelve months. (See RADI stock analysis on TipRanks)
Qorvo, Inc. (QRVO)
Cell properties are important, but no 5G device will function without the most modern semiconductor chips. That’s where Qorvo comes in. This company is a mid-size player in the chip industry, but it holds a strong market position in the networking chipset niche – exactly what the new 5G handsets and smartphone will require to access the new networks. The company also produces lines of chips for cordless phones and industrial radio devices.
Qorvo is actively developing a portfolio of 5G enabled chipsets in multiple areas of the networking industry, including mobile devices, infrastructure hardware, and radio frequency (RF) devices. The company is one of the chip suppliers for Apple (AAPL), giving it access to the device makers’ 1 billion installed user base.
After dipping in Q1 when coronavirus hit, QRVO has had a spectacular year. EPS has risen from 43 cents in Q1 to $1.20 in Q3. Subsequently, the stock has climbed 43% in 2020, and has seen its market cap expand to ~$19 billion.
In a note on ‘best ideas for 2021,’ Cowen analyst Karl Ackerman writes of Qorvo: “The pivot to 5G is occurring faster than 4G, which was a boon for RF stocks and industry fundamentals in the early few years of the ramp. QRVO continues to expand its capability across the entire RF signal chain for BAW – perhaps the most critical filter technology for 5G. Let’s not forget its ~$400MM 5G infrastructure business is very diversified across all non-Huawei vendors – particularly in China, and QRVO’s 5G content opportunity is 10x higher than 4G.”
Ackerman is bullish on QRVO’s forward prospects, and rates the stock an Outperform (i.e. Buy). His $225 price target suggests it has room for ~37% growth in the year ahead. (To watch Ackerman’s track record, click here)
Overall, Qorvo’s Moderate Buy analyst consensus rating is based on 17 reviews, breaking down to 12 Buys and 5 Holds. (See QRVO stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
