Qualcomm looks to sink chip shot

Recent Price $120
Dividend $3.00
Yield 2.5%
P/E Ratio 10
Shares (millions) 1,140.0
Long-Term Debt as % of Capital 43%
52-Week Price Range $193.58 - $118.23

 

Qualcomm ($120; QCOM) shares have rebounded 4% since the end of June, roughly in line with the gains made by the broad S&P 1500 Index and the technology sector. The stock remains down 28% this year.

Qualcomm earns a Quadrix® Overall rank of 81, down from 94 at the end of June, due to falling scores for Momentum and Earnings Estimates. The decline coincides with Qualcomm’s mixed June-quarter report, featuring robust operating momentum but disappointing guidance. Still, we remain optimistic the stock’s rally has legs. Qualcomm, yielding 2.5%, is a Buy.

Qualcomm spreads its bets

In the June quarter, Qualcomm grew per-share profits 54% and revenue 37%, with both metrics topping the consensus. Both earnings per share and sales have now risen at least 30% in eight straight quarters. Operating profit margin exceeded 40% for just the third time for any quarter since 2008. But operating cash flow and free cash flow dropped for the fourth straight quarter.

Management’s outlook for the September quarter fell a little short of analyst expectations. Qualcomm targets September-quarter earnings per share of $3.00 to $3.30, implying 18% to 29% growth; the midpoint of $3.15 lagged the then-consensus of $3.25. Management sees quarterly revenue advancing 11% to 27%; the consensus had called for 27% growth.

Qualcomm operates two primary businesses: semiconductors (84% of sales for the 12-months ended June) and licensing (14%). Within its semiconductor business, handsets (55%) remain Qualcomm’s largest semiconductor market by a wide margin. But, in recent years, management has set its sights beyond the mature smartphone market by dredging new revenue streams in the internet of things (16%) and automotive (3%) markets.

Qualcomm says sales for internet of things remains on pace to reach $9 billion by fiscal 2024 ending September, up from $6.57 billion for the 12 months ended June. Annual automotive sales are expected to reach $10 billion over the next decade, up from $1.22 billion in the past 12 months. The automotive unit boasts a pipeline of design wins worth more than $19 billion, up from $2 billion in the March quarter. To further diversify its business, Qualcomm is eyeing a return to the server market.

Conclusion

Following Qualcomm’s lackluster guidance, analyst estimates are trending lower. For fiscal 2023 ending September, the consensus calls for earnings per share to rise 4% to $12.97, down from the 5% growth expected 90 days ago. Revenue is expected to rise 6% next year.

At 10 times estimated fiscal 2023 earnings, Qualcomm shares offer a 30% discount to the semiconductor industry median. Even using the most pessimistic fiscal 2023 profit estimate of $11.46, Qualcomm’s year-ahead P/E ratio is a modest 11.5.

If Qualcomm merely meets the 2023 earnings estimate of $11.46 per share and its trailing P/E ratio rises to 15, the shares would rally to $175 over the next 14 months.

Qualcomm Inc., 5775 Morehouse Drive, San Diego, CA 92121, (858) 587-1121, www.qualcomm.com.

 

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Jun '22 $2.96 vs. 1.96 37% $161.30 - $118.23 15 - 11
Mar '22 3.21 vs. 1.90 41% 193.58 - 139.05 20 - 14
Dec '21 3.23 vs. 2.17 30% 192.68 - 122.17 23 - 14
Sep '21 2.55 vs. 1.45 43% 152.28 - 130.61 20 - 18

 

Year
(Sep.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2021 $33.5 $8.54 $2.66 $167.94 - $114.92 20 - 13
2020 21.7 4.19 2.54 123.93 - 58.00 30 -14
2019 19.4 3.54 2.48 90.34 - 49.10 26 - 14
2018 22.7 3.69 3.69 76.50 - 48.56 21 - 13

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
81 51 76 99 81 45 31 18

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.