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Should You Buy Qualcomm (QCOM) Stock Ahead of Earnings?

Benjamin Rains
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Shares of Qualcomm QCOM opened lower on Tuesday, only one day before the chip maker is scheduled to release its quarterly financial report. This dip is part of a much more worrisome decline over the last 12 weeks. But Qualcomm could turn things around if the company posts strong quarterly results.

Qualcomm stock has tanked nearly 25% since January, as fears that an escalating trade war between the U.S. and China could leave the company caught in the crossfire. The tech giant is also currently embroiled in a tough legal battle with Apple AAPL.

With that said, first quarter earnings season has helped lift the market, with fellow technology powers Netflix NFLX and Google parent Alphabet GOOGL impressing investors already.

Therefore, investors should take a chance to look at some of Qualcomm’s current quarterly estimates to see if the stock might be worth buying ahead of earnings, even if the company’s long-term future looks somewhat uncertain.

Latest Outlook & Valuation

Our current Zacks Consensus Estimates are calling for Qualcomm’s revenues to reach $5.2 billion, which would mark a 3.7% climb from the year-ago period. On the other end of the income statement, Qualcomm’s quarterly earnings are projected to plummet 47.8% to hit $0.70 per share.

Of course, top and bottom line growth estimates are just two of the many things investors will be concerned with when Qualcomm reports its second quarter 2018 financial results on Wednesday. We can also turn to our exclusive non-financial metrics consensus estimate file to help prepare.

The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.

According to these consensus estimates, Qualcomm is projected to ship 182 million MSM chips. This would mark just a 1.7% climb from the year-ago period, for one of the company’s biggest business units. Investors should also note that Qualcomm shipped 237 million and 217 million MSM chips, respectively, in the trailing two quarters.

Heading into Tuesday, Qualcomm was trading with a Forward P/E of 17.1, which marked a discount compared to the “Wireless Equipment” industry’s average of 21.1. With that said, the company is currently offering investors a bit of value against its median Forward P/E of 18.9. And due to the major selloff, Qualcomm is currently trading well below the 23x forward earnings it was trading at in late February.

Earnings ESP Whispers

Investors will also want to understand what chance Qualcomm has to surprise investors with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Qualcomm is currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of -3.12%. The company’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $0.67 per share, which comes in 3 cents below our current consensus estimate. Therefore, QCOM is a stock that could fall short of quarterly earnings estimates.

Surprise History

Qualcomm’s earnings surprise history and the effect that these surprises have had on its share prices are two other important factors to consider ahead of the chip maker’s earnings report.

QUALCOMM Incorporated Price, Consensus and EPS Surprise

QUALCOMM Incorporated Price, Consensus and EPS Surprise | QUALCOMM Incorporated Quote

We can see that Qualcomm has posted strong earnings results recently, posting an average earnings surprise of 8.54% in the trailing four periods. However, these beats haven’t always led to positive momentum immediately following Qualcomm’s quarterly earnings release.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Qualcomm stock has turned negative in five out of these last six windows.

Qualcomm is scheduled to report its quarterly financial results after market close on Wednesday, April 25.

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