RF Micro Devices Earnings: Rapid Revenue Growth

RF Micro Devices (NASDAQ: RFMD  ) , a leading provider of cellular frequency solutions, blew past its own guidance when it reported its fiscal second-quarter earnings. The first quarter marked a vast improvement in the company's financial performance, with both gross and operating margins improving dramatically, and that trend has continued during the second quarter. The rapid rise in demand for mobile data is fueling RF Micro's business, and the second quarter was the best on record in terms of both revenue and profitability. Here's a deeper look at RF Micro's second-quarter results.

The details
RF Micro handily beat both its own guidance and analyst estimates for revenue and EPS during the second quarter:

Metric

Average Analyst Estimate

Prior Guidance

Actual Results

Revenue	$346.2 million	$345 million	$362.7 million
Non-GAAP EPS	$0.27	$0.27	$0.30

Sources: RF Micro and Yahoo! Finance. 

Revenue jumped 17% year over year, far faster than the 10.9% growth the company previously guided for. Gross margin, which rose dramatically to 45% during the first quarter, increased further to 46.2% during the second quarter. The operating margin also improved, rising to 20.8% during the second quarter, up from 3% during the same quarter last year and 14.6% during the previous quarter.

Guidance for the third quarter was strong. Revenue is expected to rise to $385 million, a 6.1% sequential improvement and a 33% year-over-year improvement. The company expects gross margin to remain in the mid-40s, and for operating expenses to remain flat, leading to an expected non-GAAP EPS of $0.33.

Key points
RF Micro is set to merge with TriQuint Semiconductor (NASDAQ: TQNT  ) by the end of this year, and during the second quarter shareholders of both companies officially approved the combination. The merger will give the combined company greater scale, with the hopes of improving both profitability and competitiveness.

TriQuint released its own earnings report one day before RF Micro, also handily beating its previous guidance. Like RF Micro, TriQuint's gross margin has improved dramatically over the past year, and its guidance for next quarter came in well above the consensus. Strong demand for the iPhone is probably helping both companies, with a teardown of the iPhone 6 Plus done last month by iFixit uncovering a TriQuint 3G amplifier module and an RF Micro antenna switch module.

In RF Micro's earnings release, it unveiled that the company had entered into three-way non-disclosure agreements with TriQuint and leading smartphone manufacturers in order to, as management put it, "accelerate highly integrated products to market, as early as next year." What these products are is anyone's guess, but this could be a sign that the impending merger between RF Micro and TriQuint is already starting to pay off, with manufacturers choosing the combination over the competition.

Whether RF Micro can maintain the high margins of the past two quarters is something investors should keep an eye on going forward. RF Micro has had good years in the past with double-digit operating margins, but the company has never been able to sustain profitability for very long. The story is the same for TriQuint, and while the combination should introduce cost savings, combining two companies with erratic earnings results over the past decade may simply lead to a larger company with equally erratic profitability.

RFMD Operating Margin (Annual) data by YCharts

Final thoughts
RF Micro had a fantastic quarter, handily beating its own guidance and calling for continued growth going forward. The merger with TriQuint is on track, and both companies are benefiting from strong demand for the iPhone 6. How long RF Micro can maintain the record margins that it produced this quarter is a question that will only time will answer, but in the short term, management seems extremely optimistic about the company's prospects.

Apple Watch revealed: The real winner is inside
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Most Investors Will Miss This Powerful Buy Signal on Amazon's Chart

Amazon.com (NASDAQ: AMZN) may have disappointed shareholders Friday with another earnings miss, but all I see is opportunity.

At this very moment, there is a screaming post-earnings buy signal on the charts that has worked out 100% of the time over the past two years. This signal is not something most investors would spot, but I use it frequently -- and with great success.

It doesn't hurt that I'm intimate with Amazon's chart patterns, statistics and earnings trends. Our last technical trade in AMZN (although not an earnings-related trade) netted us 51% in less than two months. This time, I see an opportunity for 65% gains before year end.

[Related -Google: Still Opportunities Ahead]

AMZN sold off to the tune off 8% Friday following its third-quarter earnings release after the close on Thursday. If investors were truly running for the hills, though, we would have seen a much more violent move and the rally from the pre-market prices would have been absent. ?CEO Jeff Bezos has been very clear with investors and the media that he is focused on the bigger picture rather than quarterly results. Back in 1997, he informed them that he would be spending money to expand Amazon's empire, and from time to time, the company would incur losses as it grew.

While Amazon may be missing on the bottom line, its customer base and revenues are growing. Like Bezos, I see the bigger bullish picture for AMZN. But what's more important today is the chart action.

[Related -The Sixty Percent Alibaba Play No One Is Talking About]

Trading Amazon's Earnings Reversal

Trading earnings is one of my specialties. As an options trader, I focused heavily on the action leading up to an earnings announcement. I gauged bullish or bearish sentiment and estimated how big of a move a stock would make once the report was out.

Most of the time, I would enter a trade ahead of the report and exit almost immediately after earnings were released.

As the years of successful pre-earnings trades went by, I began to notice a large number of stocks that performed what I call an "earnings reversal."

When a stock is trending (either bullish or bearish), its earnings report can accelerate it in the direction of the trend. An earnings reversal occurs when shares move outside of their Bollinger Bands, creating an overbought or oversold condition from which the stock then reverses.

Essentially, the reaction to earnings pushes the stock too far in one direction, and if the conditions are right, a short-term reversal occurs and thrusts the stock in the opposite direction, often in a big way.

In the case of Amazon, this powerful signal was triggered after seven of the past eight earnings reports. In each instance, if a trader went long or short (depending on the nature of the signal) at the close the day following the announcement, they would have made an average of 11.4% before the next report was issued.

The most dramatic earnings reversal came in April 2013. AMZN was in a bearish trend when it gapped lower following its report. Traders who entered a bullish position at the close on April 26, 2013, made 21% in just three months.

The signal I'm seeing right now looks just as strong as the one I spotted then.

AMZN closed Friday at $287.06. Simply moving back to its pre-earnings close of $313.18 would only require a 9% gain, less than the 11% average move the stock has made after every signal in the past two years.

With a call option strategy, we can leverage that 9% gain into 65% profits in two months.

AMZN Call Option Trade

Today, I am interested in buying AMZN Dec 270 Calls for a limit price of $26.

Risk graph courtesy of tradeMONSTER

This call option has a delta of 72, which means it will move roughly $0.72 for every dollar that AMZN moves, but it costs a fraction of the price of the stock.

The trade breaks even at $296 ($270 strike price plus $26 options premium), which is 3% above current prices.

If AMZN hits my upside target of $313, then the call options will be worth at least $43. Once you enter the trade, place a good 'til cancelled (GTC) order to sell your calls at that price.

Recommended Trade Setup:

-- Buy AMZN Dec 270 Calls at $26 or less (use limit orders)

-- Set stop-loss at $13

-- Set price target at $43 for a potential 65% gain in two months

1 Dividend Stock for Retirees to Buy

Retirement investing is typically all about safety and security. After all, retirees can't afford to take overly risky bets on speculative investments that might blow an irreversible hole in their nest eggs. With that in mind, it might seem inappropriate to suggest a stock in a technology company for retirees. That's because technology is commonly viewed as a volatile industry in which high-flying companies soar and then can easily crash and burn if their innovation doesn't keep up with competitors.

But not all technology companies are created equal. For example, there are a few technology companies that share many of the same qualities as other sectors that retirees flock to. One such tech company is Microsoft (NASDAQ: MSFT  ) . Here's why Microsoft is a high-quality dividend stock that retirees should consider.

Stability and dividends
Retirees often look to buy stock in large companies with rock-solid balance sheets. The stocks they favor often pay dividends as well, which are an important margin of safety for income investors. On these qualities, Microsoft definitely fits the bill. It's a megacap company, with a market capitalization in excess of $360 billion. Companies this large tend to have smoother, more predictable cash flows and stable profits. That helps insulate investors against sudden, dramatic crashes, which is a quality that retirees would surely appreciate.

Microsoft recently concluded its fiscal 2015 first quarter, and the company's results once again beat expectations. Microsoft posted excellent 25% revenue growth. That's because sales on both sides of its business, its software and hardware, are soaring. On the software side, the company continues to make huge progress in the cloud. Office 365 racked up 25% more subscribers just since the previous quarter. The Azure and Dynamics CRM offerings are also gaining traction and helped commercial cloud revenue soar 128% year over year.

On the hardware side, Microsoft's Xbox One, the newest iteration of its gaming console, continues to be a hit. Total Xbox sales doubled last quarter, and the Xbox One is now available in 28 geographic markets.

Microsoft generated $7 billion of free cash flow last quarter, according to S&P Capital IQ data. In addition, Microsoft holds a rock-solid balance sheet. At the end of the last quarter, Microsoft held $89 billion worth of cash and investments on its balance sheet. In such an advantageous position, Microsoft can afford to do a lot of different things with its prodigious cash flows.

Microsoft uses a significant portion of its free cash flow to pay dividends to shareholders. It offers a nifty 2.8% dividend yield, which beats the broader market's overall yield, as measured by the S&P 500 Index. In addition, because Microsoft generates solid growth and has so much cash on the books, the company can afford to raise its dividend on a regular basis. Microsoft increased its dividend by 11% in September. Over the past five years, the company has raised its dividend by 19% compounded annually. This level of dividend increase not only beats inflation, but it also results in significant income generation over time.

Microsoft is ideal for retirees
On the surface, many retirees might be reluctant to invest in a technology company, because of the volatility associated with the industry. But while memories of the 1999 technology bubble might still haunt investors, it's a new day for technology companies like Microsoft. That's because Microsoft is now a megacap company with stable operations. The company is reliably profitable and generates billions of free cash flow every quarter.

That means Microsoft can do what retirees in search of income value want most from their investments, which is to pay strong dividends. Microsoft pays a market-beating dividend and also increases its dividend regularly. Doing so allows its investors to receive solid income, and their purchasing power is protected as well, since Microsoft's dividend increases are well above the rate of inflation.

For all these reasons, retirees looking for a strong dividend stock to buy should consider Microsoft.

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