North America

Earnings Preview: Qualcomm Q2 2017 (QCOM)

By: Craig Bowles

Overview

Qualcomm, Inc. (QCOM) is slated to report 2Q 2017 earnings after the bell on Wednesday, April 19th. The earnings release is expected at approximately 4:00 p.m. ET 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 $1.15 to $1.25. The current Street estimate is $1.19 (range $0.99 to $1.25. (Source: Yahoo! Finance). Consensus was $1.20 three months ago.
  • Revenues: Company guidance is for $5.5 bln to $6.3 bln. Analysts expect an increase of 6.4% y/y to $5.90 bln. Consensus was $5.90 bln three months ago.

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (3Q2017 & FY2017):

  • 3Q 2017 Adjusted EPS Guidance will compare to analyst expectations for $1.10 (range $0.90 to $1.28).
  • 3Q 2017 Revenue Guidance will compare to analyst consensus of $5.95 bln (range $5.59 bln to $6.34 bln).
  • FY2017 Adjusted EPS Guidance: Analysts expect $4.64 (range $4.00 to $5.21).
  • FY2017 Revenue Guidance: Analysts expect an increase of 1.2% y/y to $23.80 bln (range $21.86 bln to $24.90 bln).
  • Qualcomm’s P/Earnings is 16.1 vs 5-year average 18.3; P/Book 2.5 vs 5-year average 3.1; P/Sales 3.3 vs 5-year average 4.8; P/Cash Flow 13.0 vs 5-year average 14.6. Dividend Yield of 4.0% compares to a 5-year average of 2.5% and industry average of 2.2%.
  • Analysts view Qualcomm with 14 (21 two qtrs. ago) Buy, 15 Hold, and 1 (0 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders bought 17,392 shares over the last three months but sold 572,238 shares in the past year. (source: NASDAQ.com) In March 2015, Qualcomm announced it will repurchase $15 billion of its stock and appears to have done that.
  • Qualcomm is compared most often to chipmakers with quarterly results possibly impacting Intel (INTC), Texas Instruments (TXN) and Broadcom (AVGO).
  • Qualcomm shares have a 1-day average price change on earnings of 5.19%. Options are pricing in an implied move of 4.39%.

Recent News

  • 04/12: Qualcomm had to pay $815 million to Blackberry (BBRY) for overcharging, according to a post on Barron’s.com.
  • 03/31: Wells Fargo reported that Qualcomm maintains its dominant position in “baseband” modem chips for wireless devices despite Intel having stolen some of the business at Apple (AAPL) for the iPhone 7, according to a post on Barron’s.com.
  • 03/08: Qualcomm will sell server chips to Microsoft (MSFT) for its Azure cloud computing services, according to a post on Barron’s.com.
  • 03/06: Canaccord reiterated a Buy rating on Qualcomm after attending its analyst event, arguing that the worst case scenario is already priced in. Litigation against the company is likely an attempt by Apple (AAPL) to lower its license payments, but these are historically resolved with new licensing deals, according to a post on Barron’s.com.
  • 02/07: Bernstein reiterated a Market Perform rating with the current price suggesting modest declines in core business FCF but things can get worse, he muses, and there’s risk should the NXP deal not go through, according to a post on Barron’s.com.

Technical Review

Qualcomm shares trended lower after reaching $80 in the first half of 2014 into Q1 2016. The $81.66 high was similar to the year 2000 peak area, so some consolidation was expected. Taking out the February low would have the next support at the early 2016’s $41 low. (Chart courtesy of StockCharts.com)

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Summary

Qualcomm is expected to get a boost from China smartphone makes but analysts are also worried about China’s national push to compete.  Analyst bullishness has waned the last six months. Insiders are starting to show an appetite for buying shares but still tepid at this point. The company has beaten earnings consensus by an average of 11c the previous four quarters. Estimize consensus for a non-GAAP EPS of $1.21 on revenue of $5.90 bln compares to analyst consensus of $1.19 on revenue of $5.90 bln. Negative market reactions that have occurred despite beating estimates show the importance of forward guidance.

 

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