Can Qualcomm (QCOM) Sustain Last Day's Stock Price Surge?
The fourth quarter of 2017 earnings has just begun with few companies reporting their results. Moreover, earnings releases are scattered in this quarter. However, the earnings calendar is not the same for all companies.
One such stock is Qualcomm Inc QCOM, which is expected to release first-quarter fiscal 2018 results on Oct 31, 2018, after the market closes.
2017 has been a mixed year for the leading wireless chipset manufacturer. Qualcomm has been trying to retain its leadership in 5G, chipset market and mobile connectivity with multiple technological achievements and launches. On the flip side, the company has been involved in various legal brawls related to unfair business practices or licensing royalty payments.
2018 seems to be a booming year for Qualcomm as the stock is soaring high. Shares of Qualcomm rose 4.48% to $68.25 on Jan 16.
The stock soared on the back of the following crucial factors —lofty revenues, profit outlook for 2019, an alternative share buyback plan if bid to acquire NXP Semiconductors NV NXPI fails, cost reduction plans and expected earnings/savings by resolving current licensing disputes.
Notably, Qualcomm is striving to win back shareholders’ support on the back of the aforementioned strategies, to reject the hostile takeover bid from Broadcom Limited AVGO.
Let’s have a closer view on each of the aforementioned factors
Hiked Guidance for 2019
Qualcomm unveiled a better-than expected outlook for revenues and profit margins for 2019. Adjusted profit per share is estimated in the range of $6.75-$7.50. Revenues are forecast in the rangeof $35-$37 billion. Per a Thomson Reuters report, the numbers have topped analyst’s estimates of a profit of $3.79 on revenues of $23.59 billion.
The company plans to achieve the profit target through its new $1-billion cost reduction plan, gains from the NXP Semiconductors deal and by resolving current licensing disputes, especially with Apple Inc. AAPL. Excluding royalty revenues and certain product revenues from Apple and other licensing disputes, Qualcomm expects to earn $5.25 in 2019.
NXP Buyout or Share Buyback: What’s Ahead?
Announced in October 2016, Qualcomm is closer to the proposed acquisition of Netherlands-based mobile chipset giant NXP Semiconductors N.V. The combined entity is likely to generate annual revenues of more than $30 billion. Further, it will reinstate the merged entity as a strong player in the next-generation mobile chipset segment with a potential market size of $138 billion by 2020.
Per the deal, Qualcomm will pay $110 per NXP Semiconductor share in cash, which includes an enterprise value of approximately $47 billion (equity value of $39 billion). So far, the deal has already received approval from the Taiwan Fair Trade Commission and the retail shareholders of NXP Semiconductors.
However, the deal is under a thorough investigation by the telecom regulatory body of the European Union, the European Commission (EC). To get through EC, Qualcomm has revised its proposed deal to takeover NXP Semiconductors. Also, the company extended the offering period of its previously announced cash tender offer of purchasing all the outstanding common shares of NXP Semiconductors.
Moreover, the deal is currently facing strong opposition from the institutional shareholders of NXP semiconductors. To this end, Qualcomm has chalked huge share buyback plans to enhance shareholders' wealth, as an alternative option if the pending deal does not go through. Let’s wait and see what is ahead for the year-long pending deal.
Cost-Cutting Plans
Qualcomm claims to have saved around $1.4 billion through its previous cost-cutting plan announced in July 2015. Moreover, the company is planning to organize a new $1-billion cost reduction plan. The company aims to reduce expenses in four main areas, including selling, general and administrative expenses (SG&A). The company is also hopeful about some of its 5G technology investments which will strategically lower spending in research and development.
Zacks Rank & Price Performance
Qualcomm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Qualcomm has been portraying an impressive price performance in the past six months. Shares of Qualcomm returned 21.3% outpacing the industry’s rally of 10.5%.
When compared with the market at large, the stock looks good compared with S&P500 index’s gain of 12.8%.
Our Concerns
Qualcomm’s improved guidance and cost cutting plans for 2019 look impressive. The targets are highly dependent on the deployment and launch of the next-generation 5G networks. Moreover, Qualcomm’s updated Snapdragon processors and applications have helped the company retain leadership in the global wireless baseband chipset market. The company has been working hard to retain its leadership in 5G, chipset market and mobile connectivity.
5G wireless network along with fully compatible devices is expected to be launched by 2020. It is yet to be seen whether the company succeeds in achieving its hefty targets.
Meanwhile, there is no possibility of a near-term settlement between Qualcomm and Apple, since no such initiatives are being undertaken by the companies. However, Qualcomm is expected to seek a quick settlement as the dispute with Apple and other licensee disputes have affected the company’s third and fourth quarters and fiscal 2017 GAAP and Non-GAAP results.
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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
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NXP Semiconductors N.V. (NXPI) : Free Stock Analysis Report
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