Qualcomm: Perfect Time To Buy

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Nov 12, 2014

After a sharp drop in its stock value, there is a fabulous open door for long-haul interest in Qualcomm (QCOM, Financial) stock at a shoddy cost. As I would like to think, there is a decent risk that Qualcomm will succeed to purpose the issues in China. The chipset market has been favoring Qualcomm and is foreseen to keep leveraging the top and bottom line of the company. Qualcomm is still a business sector pioneer in this space; however, a few headwinds are provided by contenders like Intel. Qualcomm is plainly the undisputed pioneer in the worldwide wireless baseband chipset market. As per a late research report from Strategy Analytics, in the first quarter of 2014, Qualcomm commanded this market with nearly 66% of global market share

Qualcomm has been doing admirably since the start of the year. The stock is up by around 14% (as I type this article) in the most recent twelve months. Nonetheless, the stock began losing esteem after second-quarter results, and right now QCOM is up around 4% year-to-date.

Besides, the late fall in stock cost is fundamentally because of the organization's unwavering dependencies on Chinese sales and licensing incomes, which have drooped throughout the last few quarters. The organization additionally reported extensive diminishment in sales and licensing incomes in China which profoundly influenced the full-year direction of the organization.

Qualcomm has convincing valuation measurements and solid income development prospects, and it has an amazingly low PEG proportion of 0.89. The organization has a greatly solid balance steel, and it has no obligation whatsoever. Moreover, Qualcomm returns worth to its shareholders by stock buyback and dividend which further generates intimacy of investors with Qualcomm.

Earnings surpass consensus estimates

Recently, Qualcomm declared its third-quarter results and was firing all cylinders. Revenue grew by 9%, to $6.81 billion as compared with the same period last quarter, beating the consensus estimates. Sequential growth of 7% was also witnessed as compared to the previous quarter of the fiscal 2014. EPS of $1.31, up 46% year over year and 15% sequentially, and also beating the consensus estimate by $0.22. Bottom line grew by 42% year over year to $2.24 billion.

The strong results posted in the third quarter continue to exemplify Qualcomm’s dominance in the chip market. We can certainly expect the growth momentum to continue, since Qualcomm gloats a broad five-mode LTE chipset portfolio created on its state-of-the-symbolization baseband technology. This portfolio incorporates LTE, FDD-LTE, TD-SCDMA, WCDMA and GSM.

Revenues from the licenses also have an major impact on the revenue stream of the company. QUALCOMM right now has more than 255 eminence bearing licenses around the world. Furthermore, the organization gloats in excess of 90 single-mode OFDMA licenses.

Growth opportunities

Auto business can assume an imperative part later on development of chip makers as the automakers are attempting to separate their products by offering special innovation. The automakers are on edge to make their products extraordinary in the business sector. Qualcomm is setting new principles in the car chips industry, which as indicated by examination directed by IHS, can possibly develop to $27.9 billion through the following few years. The organization has wanted to infiltrate the auto chips market by presenting internet hotspot connection option in the most recent product offering of automakers.

China market recovering

Licensing and royalties revenue speaks to a significant segment of Qualcomm's profit, which has been contracting because of progressing Chinese antitrust examinations and business immersion. The organization is one of a few multinational organizations in China, which are under weight as controllers have expanded obligation with respect to patent authorizing and evaluating of Smartphone chips. On the other hand, the Chinese examinations are about closed and the results will be affirmed soon. Qualcomm likewise advertised that its venture investment wing had resolved to put to the extent that $150 million in Chinese new businesses which concentrate on creating mobile technologies.

Impressive payout with strong repurchase programs

In the recent quarter, Qualcomm had a healthy payout of $2.06 billion, including $1.35 billion through repurchases of 17.0 million shares of common stock and $706 million, or $0.42 per share, of cash dividends paid.

Qualcomm has been paying regular dividend since 2003. The forward yearly dividend yield is at 2.27%, and the payout fraction is just 32.8%. The yearly rate of dividend traction in the course of the past 3 years was high at 18.6%, considering the last 5 years were additionally high at 14.9%, and decade was lofty at 30.3%.

Qualcomm records an impressive dividend history and this always makes it favorable for a dividend seeking investors, and QCOM's execution has been amazing in this respect.

Conclusion

Based on an analysis of the firm's P/E ratios, Qualcomm is expected to have significant upside. Qualcomm's P/E ratios of 16.8 to the technology industry's ratio of 25.7, we see that Qualcomm has a greater upside of 65%. Besides, the circumstances in China have likewise affected the stock value development, and we may see some positive development if the aftereffects of the examination are not excessively discriminating. Qualcomm has sufficient money stream ability to help twofold digit profit for every share grain through the following few years with a sensible earning payout level.

In my opinion, Qualcomm is ideally placed to capitalize on globally increasing demand for tablets and smartphones, and it can be a perfect buy looking at its growth prospects and dividend history.