North America

Earnings Preview: Qualcomm Q3 2016 (QCOM)

By: Craig Bowles

Overview

Qualcomm, Inc. (QCOM) is slated to report 3Q 2016 earnings after the bell on Wednesday, July 20th. The earnings release is expected at approximately 4:00 p.m. ET with a conference call to follow at 4:30 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 $0.97 (range $0.93 to $1.02. (Source: Yahoo! Finance). Consensus was $1.02 three months ago.
  • Revenues: Company guidance is for $5.2 bln to $6.0 bln. Analysts expect a decrease of 4.3% y/y to $5.58 bln.

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (4Q2016 & FY2016):

  • 4Q 2016 Adjusted EPS Guidance will compare to analyst expectations for $1.09 (range $0.96 to $1.26).
  • 4Q 2016 Revenue Guidance will compare to analyst consensus of $5.74 bln (range $5.46 bln to $6.09 bln).
  • FY2016 Adjusted EPS Guidance: Analysts expect $4.08 (range $3.91 to $4.21).
  • FY2016 Revenue Guidance: Analysts expect a decrease of 10.5% y/y to $22.61 bln (range $22.26 bln to $23.03 bln).
  • Qualcomm’s P/Earnings is 17.2 vs 5-year average 19.4; P/Book 2.7 vs 5-year average 3.2; P/Sales 3.8 vs 5-year average 5.4; P/Cash Flow 11.7 vs 5-year average 15.7. Dividend Yield of 3.6% compares to a 5-year average of 2.1% and industry average of 2.5%.
  • Analysts view Qualcomm with 18 (21 last qtr) Buy, 16 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 65,958 shares over the last three months and 421,723 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 2015 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 6.81%. Options are pricing in an implied move of 4.09%.

Recent News

  • 06/30: Bernstein downgraded Qualcomm’s rating to Market Perform from Outperform citing the current outlook for licensing and chip sales doesn’t support much of an outlook for growth, according to a post on Barron’s.com.
  • 06/24: Qualcomm filed a complaint in Beijing against Chinese smartphone maker Meizu on licensing its patents in accordance with an agreement signed a year ago with the Chinese government, according to a post on Barron’s.com.
  • 05/02: Susquehanna is impressed that China’s Xiaomi already has announced an application processor, called the Rifle, just five months after entering a licensing agreement with Qualcomm, 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. Point and figure technicians already neared the bearish objective of $40 and switched to a bullish objective of $75. The 200-day moving average is now acting as support and is at $50.75. (Chart courtesy of StockCharts.com)

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Summary

Qualcomm’s joint venture with TDK Corp is expected to close by early CY2017.  Analyst bullishness is supported by active buybacks and has remained despite the stock having declined. The company has 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 $5.60 bln compares to analyst consensus of $0.97 on revenue of $5.58 bln. Negative market reactions over the past year despite beating estimates show the importance of forward guidance.

 

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