A month has gone by since the last earnings report for Qualcomm (QCOM). Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qualcomm due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qualcomm Beats Q3 Earnings, Revenues Beat, NXP Deal Aborted
Qualcomm reported healthy third-quarter fiscal 2018 (ended Jun 24, 2018) results with solid performance in the licensing business and income tax benefits. Diligent execution of operational plans and stringent cost management efforts also contributed to the strong quarterly results.
On a GAAP basis, quarterly net income improved to $1,219 million or 82 cents per share from $866 million or 58 cents in the year-ago quarter, primarily on top-line growth and income tax benefit. Adjusted earnings (excluding the Qualcomm Strategic Initiatives segment and certain share-based compensation, acquisition-related items, and restructuring-related charges) were $1.01 per share compared with 83 cents in the year-earlier period. The bottom line comfortably surpassed the Zacks Consensus Estimate of 71 cents.
Quarterly GAAP revenues of $5,599 million increased 4.2% year over year, largely due to an interim payment of $500 million from other licensees that were in dispute with the company. The top line surpassed the Zacks Consensus Estimate of $5,200 million.
Segment-wise, Qualcomm Code Division Multiple Access Technologies (“QCT”) revenues remained relatively flat at $4,087 million, as strong demand from Chinese OEMs was offset by lower demand from Apple Inc. EBT (earnings before tax) margin increased to 15% from 14% on higher volume and cost-control initiatives backed by strong operational performance in China and higher modem shipments.
Qualcomm Technology Licensing revenues were $1,465 million, up 25% year over year. EBT margin was 72% compared with 73% in the prior-year quarter.
During the quarter, in QCT, Qualcomm shipped 199 million MSM (Mobile Station Modem) chipsets, up 6% year over year, owing to stronger-than-expected demand in China, particularly 700 and 800 series Snapdragon solutions.
NXP Deal Update
Qualcomm decided to terminate the agreement to acquire NXP Semiconductors N.V. as it failed to get the regulatory approval from the State Administration for Market Regulation in China. The transaction was stuck in the red tape for about 21 months and continued uncertainty, heightened by the U.S.-China trade war, forced the company to abort the deal.
Cash Flow & Liquidity
During the third quarter of fiscal 2018, Qualcomm generated $2,053 million of cash from operating activities compared with $171 million in the prior-year quarter, bringing the respective tallies for the first nine months to $4,331 million and $2,577 million.
As of Jun 24, 2018, Qualcomm had $35,619 million of cash and cash equivalents with long-term debt of $15,378 million.
During the quarter, Qualcomm returned $1.9 billion to stockholders. This included $911 million (62 cents per share) of cash dividends and $1 billion through repurchase of 17.4 million shares. The company further revealed its plans to implement a new stock repurchase program worth $30 billion on the termination of the NXP acquisition to reward its shareholders with risk-adjusted returns.
Fourth-Quarter Fiscal 2018 Outlook
Revenues for the fourth quarter of fiscal 2018 are estimated in the range of $5.1-$5.9 billion. GAAP earnings are estimated between 58 cents and 68 cents per share. Non-GAAP earnings are projected between 75 cents and 85 cents per share. Qualcomm is expected to ship 205-225 million MSM chipsets in the ongoing quarter.
Going ahead, the company is expected to progress well with the execution of its $1 billion cost plan.
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 11.69% due to these changes.
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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.
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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