North America

Earnings Preview: Qualcomm Q1 2016 (QCOM)

By: Craig Bowles

Overview:

Qualcomm, Inc. (QCOM) is slated to report 1Q 2016 earnings after the bell on Wednesday, January 27th. The earnings release is expected at approximately 4:00 p.m. EST with a conference call to follow at 4:45 p.m. that is webcast through Qualcomm Investor Relations. The company is a NASDAQ-100 and S&P 500 component, so results have potential to impact the broader market gauges.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.80 to $0.90. The current Street estimate is $0.90 (range $0.85 to $1.03. (Source: Yahoo! Finance). Consensus was $1.09 three months ago.
  • Revenues: Company guidance is for $5.2 bln to $6.0 bln. Analysts expect a decrease of 19.8% y/y to $5.69 bln (range $5.12 bln to $6.00 bln).

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (2Q2016 & FY2016):

  • 2Q 2016 Adjusted EPS Guidance will compare to analyst expectations for $1.02 (range $0.82 to $1.25).
  • 2Q 2016 Revenue Guidance will compare to analyst consensus of $5.69 bln (range $4.77 bln to $6.18 bln).
  • FY2016 Adjusted EPS Guidance: Analysts expect $4.19 (range $3.73 – $4.72).
  • FY2016 Revenue Guidance: Analyst consensus is $23.28 bln (range $20.26 bln to $25.86 bln).
  • Qualcomm’s P/Earnings is 14.2 vs 5-year average 19.4; P/Book 2.2 vs 5-year average 3.2; P/Sales 3.0 vs 5-year average 5.4; P/Cash Flow 13.6 vs 5-year average 15.7. Dividend Yield of 4.1% compares to a 5-year average of 2.1% and industry average of 2.6%.
  • Analysts view Qualcomm with 25 Buy, 10 Hold, and 2 Sell rating. (source: MarketBeat.com)
  • Insiders have sold 170,108 shares over the last three months and 678,775 shares in the past year. (source: NASDAQ.com) In March 2015, Qualcomm announced it will repurchase $15 billion of its stock and hike its dividend 20%. The plan was to repurchase $10 billion within roughly the next 12 months. This replaced the previous program, which had a $2.1 billion authorization remaining. The company had been announcing closer to $5 bln for buybacks in their March announcements.
  • Qualcomm is compared most often to chipmakers with quarterly results possibly impacting Texas Instruments (TXN) and Broadcom (BRCM).
  • Qualcomm shares have a 1-day average price change on earnings of 6.49%. Options are pricing in an implied move of 6.58%.

Recent News

  • 01/13: Qualcomm announced a partnership with Japan’s TDK to enable delivery of (radio frequency) front-end modules (RFFE) and RF filters into fully-integrated systems. MKM Partners said customers will likely be reluctant to decrease supplier diversity and concentrate more content with Qualcomm, according to a post on InvestorsDaily.com.
  • 01/13: Susquehanna upgraded Qualcomm to Positive from Neutral and raised the price target to $60 from $53 citing a compelling risk-reward following a difficult 18 months with the China issues compounded by pressure on royalties as well as a disastrous product cycle for their flagship chipset, according to a post on Benzinga.com.
  • 12/24: Merrill Lynch has Qualcomm as a Top 2016 Pick citing growth potential and solid 4.00% dividend yield — twice the S&P 500 index, according to a post on TheStreet.com.

Technical Review

Qualcomm shares have trended lower since reaching $80 in the first half of 2014. The $81.66 high was similar to the year 2000 peak area, so some consolidation was expected. Point and figure technicians have a bearish objective of $40 and their downtrend line is at $55. (Chart courtesy of StockCharts.com)

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Summary

Qualcomm earnings releases are a mix of current results and forward guidance that create an often exciting stock price reaction.  Having a relatively new CEO, investors will remain on alert for any possible policy changes.  Analyst bullishness has only increased as the stock has declined. The company had beaten earnings consensus by an average of 6c the last four quarters. Estimize consensus for a non-GAAP EPS of $0.93 on revenue of $5.690 bln compares to analyst consensus of $0.90 on revenue of $5.69 bln. Negative market reactions despite four quarters of beating estimates show the importance of forward guidance.

 

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