Earnings Preview: Qualcomm Inc. - Analyst Blog

By Zacks Equity Research,

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Qualcomm Inc. ( QCOM ) is slated to release its first quarter 2012 results on Wednesday, February 1, after the closing bell. The current Zacks Consensus Estimate for the first quarter is pegged at 81 cents per share, representing an annualized growth of 16.73%.

With respect to earnings surprises over the trailing four quarters, Qualcomm has outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 4.16%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter Highlights

On November 3, 2011, Qualcomm reported its fourth quarter 2011 financial results. On a GAAP basis, quarterly net income was $1,056 million or 62 cents per share compared with $865 million or 58 cents per share in the year-ago quarter. However, adjusted (excluding special items) EPS in the reported quarter was 68 cents, just a penny shy of the Zacks Consensus Estimate.

Total revenue in the quarter was $4,117 million, up 39.5% year over year and ahead of the Zacks Consensus Estimate of $4,009 million. Gross margin was 63.6% compared with 68.6% in the year-ago quarter. Quarterly operating margin was 30.1% compared with 32.5% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 11 analysts covering the stock, one analyst increased the EPS estimate while one decreased the same for the first quarter of 2012. Similarly, for the second quarter of fiscal 2012, out of the 10 analysts covering the stock, one analyst raised the EPS estimate while none moved in the opposite direction.

For fiscal 2012, over the last 30 days, of the 11 analysts covering the stock, one analyst raised the EPS estimate while one analyst slashed the EPS estimate. Likewise, for the fiscal 2013, in the last 30 days, out of the 8 analysts, only one analyst reduced the EPS estimate.

Most of the analysts prefer to remain on the sidelines as most of the positives on Qualcomm's stock have already been reflected in the current valuation, thus leaving little scope for an upside. Furthermore, the company is currently trading higher at the 52-week price trend.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate was in line with the previous estimate of 81 cents for the first quarter of 2012 and 80 cents for the second quarter of 2012. Similarly, for fiscal 2012, during the last 30 days, the current Zacks Consensus Estimate was at par with the current estimates of $3.22. However, for fiscal 2013, the current Zacks Consensus Estimate was just a penny short of the earlier estimate of $3.64.

Earning Surprises

The current Zacks Consensus Estimates for the ongoing quarter reflects a 4.94% downside potential but the second quarter of 2012 contains a 3.75% growth potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2012 and 2013, Zacks Consensus Estimates reflects downside risk potentials of 4.35% and 6.34%, respectively.

Our Recommendation

We believethe company's record-high earnings,strong balance sheet and solid management outlook for the current fiscal year will act as positive catalysts in the long run. Moreover, the growing popularity of smartphones and tablets coupled with increased deployment of 3G/4G networks will further drive the stock upward.

However, stiff competition from formidable rivals like Broadcom Corporation ( BRCM ) and Texas Instruments Inc. ( TXN ) as well as lower ASP of smartphones will negatively impact Qualcomm's royalty business going forward.

We maintain our long-term Neutral recommendation on Qualcomm. Currently, Qualcomm has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

BROADCOM CORP-A ( BRCM ): Free Stock Analysis Report
QUALCOMM INC ( QCOM ): Free Stock Analysis Report
TEXAS INSTRS ( TXN ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BRCM , QCOM , TXN

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