Wednesday, July 19, 2017

Qualcomm Reports Quarterly Results Tonight: Bullish

Qualcomm (QCOM) Reports Quarterly Results Tonight with an earnings call at 4:45 EDT today. We rate Qualcomm a Medium Term Buy based on having over 70% upside to our 12 month target price of $100. That target is based on earnings of $5.78 for calendar 2018 using a historical 17X price earnings ratio (P/E).

We are at $.87 for this quarter versus the street's $.83. For next quarter we're at $.94 versus the street's $.91.
Qualcomm Doesn't Have The Best Stock Reaction History On Quarterly Reports

We admit that the company hasn't had the best stock reaction to quarterly reports being up only 45% of the time. The stock being down though can mean that any good news could help the stock lift.

We don't think Qualcomm is the safest stock to own based on some of the issues we list below but we like it because of their unique positioning and the potential for huge earnings growth in 2018.

Two Major Issues We Need Clarity From Tonight's Conference Call

First) Qualcomm's plans to aquire with NXP (NXPI) have been on hold based on concerns from EU regulators. Qualcomm has said the acquisition would be significantly additive to earnings. Resolving this will help the stock move higher.

Second) Apple and Qualcomm are locked in a legal battle about Apple paying Qualcomm royalties on their patented technologies.

Qualcomm CEO said just a couple of days ago that he expected the dispute to be settled out of court. Resolving this dispute would also help the stock jump.

We think however, from a 50,000 foot view, Apple's lawsuit against Qualcomm really just shows how powerful Qualcomm is in 3G, 4G and soon 5G chips.  Even Apple is having trouble negotiating with Qualcomm thanks to the chip maker's huge lead in this critical segment. 

We'd guess the worst case scenario is somewhat priced into the shares as Qualcomm has excluded receiving the disputed revenues from Apple in their guidance. That means the risk-reward of a settlement would favor the stock moving back up.

Huge Huge Huge Growth Ahead. Did We Say Huge?

Qualcomm says their addressable end markets are going to triple by 2020. That is 2.5 years away and that is absolutely huge. (Did we say huge yet? HUGE).

Simple math, that's 100% growth each year. Nobody's numbers include that. Think about that. That gives us visibility for upside to our numbers. So yes you have risks, but the upside is what? Huge!

The company says they already are on their way to delivering products in these addressable markets including Internet of Things, data centers, autonomous driving and RF front end. With wireless now moving everywhere Qualcomm benefits.

There should also be a 5G upgrade cycle from 2018 to 2020 which can also be a meaningful driver to the company.

Let's Wrap It Up

*There is more risk in Qualcomm than some of our other medium-term buy recommendations but we think the reward based on multiple drivers compensates us.

By: Chaim Siegel, Elazar Advisors, LLC, Happy and profitable trading! 

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Disclaimer: Stocks reported by Elazar Advisors, LLC are guided by our daily, weekly and monthly methodologies. We have a daily overlay which changes more frequently which is reported to our premium members and could differ from the above report. Portions of this report may have been issued in advance to subscribers or clients. All investments have many risks and can lose principal in the short and long term. This article is for information purposes only. Ratings are based on hypothetical trade directions. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC and their related parties harmless. Any trading strategy can lose money and any investor should understand the risks.


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