North America

Earnings Preview: Qualcomm Q2 2016 (QCOM)

By: Craig Bowles

Overview

Qualcomm, Inc. (QCOM) is slated to report 2Q 2016 earnings after the bell on Wednesday, April 20th. 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 $0.90 to $1.00. The current Street estimate is $0.96 (range $0.88 to $1.07. (Source: Yahoo! Finance). Consensus was $1.01 three months ago.
  • Revenues: Company guidance is for $4.9 bln to $5.7 bln. Analysts expect a decrease of 22.6% y/y to $5.34 bln (range $5.18 bln to $5.70 bln).

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (3Q2016 & FY2016):

  • 3Q 2016 Adjusted EPS Guidance will compare to analyst expectations for $1.02 (range $0.89 to $1.32).
  • 3Q 2016 Revenue Guidance will compare to analyst consensus of $5.56 bln (range $5.18 bln to $6.56 bln).
  • FY2016 Adjusted EPS Guidance: Analysts expect $4.11 (range $3.76 to $4.70).
  • FY2016 Revenue Guidance: Analysts expect a decrease of 11.1% y/y to $22.46 bln (range $21.65 bln to $23.55 bln).
  • Qualcomm’s P/Earnings is 17.0 vs 5-year average 19.4; P/Book 2.5 vs 5-year average 3.2; P/Sales 3.4 vs 5-year average 5.4; P/Cash Flow 13.8 vs 5-year average 15.7. Dividend Yield of 3.8% compares to a 5-year average of 2.1% and industry average of 2.5%.
  • Analysts view Qualcomm with 21 Buy, 12 Hold, and 1 (2 last qtr) Sell rating. (source: MarketBeat.com)
  • Insiders have sold 106,975 shares (170,108 last qtr) over the last three months and 506,496 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. The company had been announcing closer to $5 bln for buybacks in their March announcements but followed up in May with another $5 bln stock buyback.
  • Qualcomm is compared most often to chipmakers with quarterly results possibly impacting Intel (INTC), Texas Instruments (TXN) and Broadcom (BRCM).
  • Qualcomm shares have a 1-day average price change on earnings of 7.15%. Options are pricing in an implied move of 5.65%.

Recent News

  • 04/11: Citigroup believes a Qualcomm purchase of Xilinx (XLNX) is less likely, according to a post on Barron’s.com.
  • 04/04: Chip sales show a worsening in the decline of sales. On a 3 month rolling basis, sales were down -9.9% compared to typical historical patterns of down -6.0%, according to a post on Barron’s.com.
  • 03/28: Barclays downgraded Qualcomm to Equal Weight from Overweight citing the likelihood of losing business to Intel in Apple’s (AAPL) next iPhone, according to a post on Barron’s.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 already neared the bearish objective of $40 and now have a bullish objective of $75. The 200-day moving average has provided resistance for nearly two years and is at $53. (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 is supported by active buybacks and has remained despite the stock having declined. The company had beaten earnings consensus by an average of 6c the last four quarters. Estimize consensus for a non-GAAP EPS of $0.99 on revenue of $5.354 bln compares to analyst consensus of $0.96 on revenue of $5.34 bln. Negative market reactions despite four quarters of beating estimates show the importance of forward guidance.

 

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