North America

Earnings Preview: Qualcomm Q3 2017 (QCOM)

By: Craig Bowles

Overview

Qualcomm, Inc. (QCOM) is slated to report 3Q 2017 earnings after the bell on Wednesday, July 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.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance was reduced at the end of April to $0.75 to $0.85 from $0.90 to $1.15 after Apple informed the company that royalty payments would be withheld. The current Street estimate is $0.81 (range $0.77 to $0.87. (Source: Yahoo! Finance). Consensus was $1.10 three months ago.
  • Revenues: Company guidance was reduced to $4.8 bln to $5.6 bln from $5.3 bln to $6.1 bln. Analysts expect a decline of 12.7% y/y to $5.26 bln. Consensus was $5.95 bln three months ago.

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance:

  • 4Q 2017 Adjusted EPS Guidance will compare to analyst expectations for $0.90 (range $0.73 to $1.07).
  • 4Q 2017 Revenue Guidance will compare to analyst consensus of $5.48 bln (range $5.10 bln to $5.97 bln).
  • Qualcomm’s P/Earnings is 18.7 vs 5-year average 18.3; P/Book 2.7 vs 5-year average 3.1; P/Sales 3.6 vs 5-year average 4.8; P/Cash Flow 13.7 vs 5-year average 14.6. Dividend Yield of 3.8% compares to a 5-year average of 2.5% and industry average of 2.2%.
  • Analysts view Qualcomm with 13 (21 three qtrs. ago) Buy, 16 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 251,534 shares over the last three months and 756,982 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 5.17%. Options are pricing in an implied move of 4.07%.

Recent News

  • 07/06: Qualcomm filed suit against Apple (AAPL) in a California district court for infringing on six Qualcomm patents with the iPhone while Apple compels its suppliers who build the iPhone to withhold payments to Qualcomm. Qualcomm also requested the International Trade Commission block any shipments to the U.S. of iPhones not using Qualcomm’s chips, according to a post on Barron’s.com.
  • 06/28: Northland Capital Markets downgraded Qualcomm to Market Perform from Outperform given how many “fronts” the company is fighting on. It’s not just the company’s lawsuits with Apple, it’s also the project of battling Intel over the right to “emulate” x86 instructions, and the prospect that AMD will steal Qualcomm’s thunder in the server market, according to a post on Barron’s.com.
  • 06/20: Qualcomm responded to the latest legal filing against it by Apple, saying Apple is misleading people about the extent of the contributions Qualcomm makes to every iPhone, in an attempt to distract people, according to a post on Barron’s.com.
  • 05/31: Qualcomm’s $110 bid for NXP Semiconductors (NXPI) is getting pushback from activist shareholders such as Elliott Management who are demanding a higher price. Morgan Stanley and Cowen & Co have suggested NXP could trade at $125 per share without the Qualcomm ceiling, according to a post on Barron’s.com.
  • 05/30: Raymond James notes Apple’s hiring of an engineer from Qualcomm means the company is intent on adding the “baseband” modem capabilities to its mobile chips, the latest effort to bring inside its circuitry, according to a post on Barron’s.com.
  • 05/25: Qualcomm asked for a preliminary injunction to make Apple’s contract electronics manufacturers, such as Hon Hai Precision, start paying Qualcomm royalties again, according to a post on Barron’s.com.
  • 05/22: JP Morgan upgraded Qualcomm to Overweight from Neutral with a $68 intrinsic value citing a “fundamental upside given the expected closure of the NXPI acquisition by the end of this year,” 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 where support came in at $40. The $81.66 high was similar to the year 2000 peak area, so some consolidation was expected. Insider buying came in at $50 in 2017 but that may change with Apple withholding payments. Upside would likely find resistance at $64 to $67 which was the previous balance. (Chart courtesy of StockCharts.com)

Summary

Qualcomm is expected to get a boost from China smartphone makers but analysts are also worried about China’s national push to compete.  Apple’s withholding royalty payments is something new in that ongoing battle. While Qualcomm is expected to win their battle with Apple, analysts worry about troubles with Intel and AMD’s new server offerings being an alternative. Analyst bullishness has waned the last nine months. Insider selling picked back up after some brief buying three months ago. The company has beaten earnings consensus by an average of 12c the previous four quarters. Estimize consensus for a non-GAAP EPS of $0.89 on revenue of $5.317 bln compares to analyst consensus of $0.81 on revenue of $5.26 bln. Negative market reactions that have occurred despite beating estimates show the importance of forward guidance.

 

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