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Can Qualcomm Stock Live Up to the Q3 Hype?

With earnings season in full swing, a number of interesting earnings reports are on deck. One notable company scheduled to report its latest quarterly earnings tomorrow is Qualcomm (QCOM).

The stakes are high for the wireless technology giant, as its stock has soared nearly 50% so far this year. Can the company’s latest results live up to expectations? That's a good question.

Street's expectations for FQ4 are dampened, as year-over-year earnings are forecast to drop by over 20%, following a similar drop in revenue. The US embargo on QCOM’s Chinese client, Huawei, and the after taste of the now-settled quarrel with Apple haven’t helped matters, either.

Furthermore, the company is still being scrutinized by antitrust regulators. Accusations differ slightly from region to region, but the gist of it is that Qualcomm is using its proprietary power to quash competitors. The trade war in general, and alarm bells ringing due to the slow down in smartphone growth have had an impact on the outlook too.

All this doesn’t necessarily mean QCOM’s share price will tank following the report. As mentioned, the market has generally been positive towards QCOM, as the stock price has recorded nice gains, starting the year at $56 per share, it is currently trading at $83.58. Should Qualcomm keep its eye on the ball, namely the opportunities in 5G, further gains might lie ahead.

However, Deutsche Bank’s 5-star analyst Ross Seymore believes the long-term view is not quite as positive. Seymore reiterated a Hold rating on QCOM stock along with a $75 price target, which implies about 12% downside from current levels. (To watch Seymore's track record, click here)

Seymore expects F4Q revenues to be in-line with Street estimates, but he wouldn't be surprised to see "incremental upside to F4Q EPS to the high end of guidance range of ~$0.75, given the co's tendency to post EPS at/ above the high end of its range (consistent since Dec 2015)."

However, “with handset market headwinds remaining, QTL revenues remaining in a fairly narrow range in the medium-term, remaining questions from potential legal/regulatory rulings (FTC, Huawei) and the ongoing CFO search," the analyst remains sidelined on the stock.

All in all, TipRanks points to early analyst sentiment split between confidence and caution on Qualcomm shares. Out of 4 analysts polled in the last 12 months, 2 rate QCOM a Buy while 1 maintains a Hold, and 1 Sell. However, according to the analysts' expectations, is this stock overvalued or undervalued? Notably, the consensus average price target stands at $81.33, marking a 4% downside potential from current levels. (See Qualcomm stock analysis on TipRanks)