North America

Earnings Preview: Qualcomm Q4 2016 (QCOM)

By: Craig Bowles

Overview

Qualcomm, Inc. (QCOM) is slated to report 1Q 2017 earnings after the bell on Wednesday, January 25th. 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 $1.12 to $1.22. The current Street estimate is $1.18 (range $1.15 to $1.24. (Source: Yahoo! Finance). Consensus was $1.22 three months ago.
  • Revenues: Company guidance is for $5.7 bln to $6.5 bln. Analysts expect an increase of 6.1% y/y to $6.12 bln. Consensus was $6.16 bln three months ago.

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (2Q2017 & FY2017):

  • 2Q 2017 Adjusted EPS Guidance will compare to analyst expectations for $1.20 (range $1.03 to $1.37).
  • 2Q 2017 Revenue Guidance will compare to analyst consensus of $5.90 bln (range $5.24 bln to $6.16 bln).
  • FY2017 Adjusted EPS Guidance: Analysts expect $4.76 (range $4.28 to $5.32).
  • FY2017 Revenue Guidance: Analysts expect an increase of 1.4% y/y to $23.83 bln (range $21.49 bln to $25.16 bln).
  • Qualcomm’s P/Earnings is 17.1 vs 5-year average 18.3; P/Book 3.0 vs 5-year average 3.1; P/Sales 4.1 vs 5-year average 4.8; P/Cash Flow 13.2 vs 5-year average 14.6. Dividend Yield of 3.2% compares to a 5-year average of 2.5% and industry average of 2.2%.
  • Analysts view Qualcomm with 17 (21 last qtr) Buy, 17 Hold, and 0 Sell ratings. (source: MarketBeat.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 5.85%. Options are pricing in an implied move of 4.93%.

Recent News

  • 01/12: Rosenblatt Securities reiterated a Buy rating on Qualcomm on expectations that the company’s set to ride the wave of smartphone sales by Chinese phone makers Vive and Oppo, according to a post on Barron’s.com.
  • 01/09: Morgan Stanley suggests investors take seriously China’s big national push to develop a more competitive home-grown semiconductor industry given margins are at an all-time high for the sector and the SOX is also near all-time high, according to a post on Barron’s.com.
  • 01/03: Qualcomm will invest in SoftBank‘s new $100 billion technology fund, according to a post on Barron’s.com.
  • 12/30: Brean Capital likes what’s in store for Qualcomm with their new “835” application processor for mobile and IoT devices, 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 have pretty much met their bullish objective of $72. (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 supported by active buybacks. The company had beaten earnings consensus by an average of 12c the previous four quarters but the year ago quarter was a 7c beat. Estimize consensus for a non-GAAP EPS of $1.25 on revenue of $6.208 bln compares to analyst consensus of $1.18 on revenue of $6.12 bln. Negative market reactions that have occurred despite beating estimates show the importance of forward guidance.

 

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