Qualcomm (QCOM) Down 5.7% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Qualcomm (QCOM). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Qualcomm due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Qualcomm Q3 Earnings Beat on Solid 5G Chip Traction
Qualcomm reported solid third-quarter fiscal 2021 results driven by the ramp-up in 5G-enabled chips and surge in demand for essential products and services that are the building blocks for digital transformation in the cloud economy. Both the bottom line and the top line increased year over year and surpassed the Zacks Consensus Estimate, backed by the strength of the business model and the ability to respond proactively to the evolving market scenario.
Net Income
On a GAAP basis, net income in the June quarter more than doubled to $2,027 million or $1.77 per share from $845 million or 74 cents per share in the prior-year quarter. The significant improvement in GAAP earnings was primarily attributable to top-line growth driven by surging demand of 5G products across handsets, along with higher automotive and IoT revenues.
Quarterly non-GAAP net income came in at $2,200 million or $1.92 per share compared with $982 million or 86 cents per share in the year-ago quarter. Undeterred by the supply chain adversities, the non-GAAP earnings per share were largely driven by higher revenues across the board. The bottom line exceeded management’s guidance and beat the Zacks Consensus Estimate by 25 cents.
Revenues
On a GAAP basis, total revenues in the fiscal third quarter were $8,060 million compared with $4,893 million in the prior-year quarter. The radical increase in revenues was driven by 5G ramp up, chip design win momentum, RF front-end demand and rise in automotive and IoT revenues with diligent execution of operational plans and resilient business culture acting as catalysts. The GAAP revenues in the quarter exceeded the company’s guided range.
Non-GAAP revenues in the reported quarter were $7,995 million compared with $4,890 million in the year-earlier quarter. The figure beat the consensus mark of $7,576 million, driven by 5G strength, high-performing core chipsets and new RF front-end content.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) improved 70% year over year to $6,472 million driven by strength in handsets and higher demand in adjacent platforms beyond mobile (RF front-end, automotive and IoT), coupled with higher chip shipments. The company is witnessing healthy traction in EDGE networking that helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are also fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes that it is on track to become the largest smartphone RF front-end supplier by revenues as RF front-end revenues of $957 million more than doubled year over year. EBT margin increased to 28% from 16%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,489 million, up 43% year over year, driven by higher royalty revenues from Huawei, better-than-expected global handset shipments and a favorable OEM mix. EBT margin was 71% compared with 62% in the year-ago quarter on top-line growth.
Cash Flow & Liquidity
Qualcomm generated $9,459 million of net cash from operating activities in the first nine months of fiscal 2021 compared with $4,073 million a year ago. At quarter end, the company had $7,399 million in cash and cash equivalents and $13,695 million of long-term debt.
Guidance
For the fourth quarter of fiscal 2021, Qualcomm expects GAAP revenues of $8.4-$9.2 billion. Non-GAAP earnings are projected to be $2.15-$2.35 per share, while GAAP earnings are likely to be $1.78-$1.98 per share. Revenues from QTL are expected between $1.45 billion and $1.65 billion. For QCT, the company anticipates revenues between $7 billion and $7.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 14.68% due to these changes.
VGM Scores
At this time, Qualcomm has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Qualcomm has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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