Shares of Qualcomm (QCOM) are edging lower in the after-market session Wednesday, down about 1.3% even though the wireless chip giant reported fiscal first quarter earnings beat Wall Street estimates. Despite the bottom-line miss, it’s tough to ignore the potential value QCOM stock presents.
Indeed, Qualcomm is facing some battles. Still, I would place a bet here on QCOM shares, which are priced at just 12 times fiscal 2017 estimates of $4.74 per share. Trading in the after-hour session at around $55, QCOM stock should reach $62 to $65 in the next 12 to 18 months delivering 18% returns. And the gains could go higher assuming its legal battle with Apple (AAPL) gets resolved, as I expect it will.
The company’s guidance, for instance, underscores the extent to which the management remains focus on execution. For the second quarter, Qualcomm is forecasting adjusted earnings per share to be in a range of $1.15 to $1.25. This compares favorably toThomson Reuters forecast of about $1.20 a share. This make Qualcomm — from a valuation perspective — easy to like at current levels. I’ll get back to that in a moment. Let’s go through he numbers.
For the quarter that ended December, the San Diego-based company reported a net income of $700 million, or 46 cents a share, down from $1.5 billion, or 99 cents a share, a year earlier. On an adjusted basis, when taking out one-time gains and costs, the company would have earned $1.19 a share, which beat analysts estimates by a penny. First quarter revenue rose 4% year over year to $6 billion, but fell shy on estimates of $6.12 billion.
“We are pleased with the strong start to our fiscal year and the year-over-year earnings growth across both our semiconductor and licensing businesses,” said CEO Steve Mollenkopf in a staement. “Looking ahead, the pending NXP acquisition accelerates our strategic transformation in the high growth areas of automotive, IoT, security and networking. We are very well positioned to lead as the semiconductor engine for the intelligent, connected world.”
Revenue in the licensing business (Qualcomm Technology Licensing (QTL)), which sells sells applications processors and cellular baseband devices, grew 13% year over year to $1.8 billion, while QCT revenue, which exists to monetize Qualcomm immense IP portfolio, came in at $4.1 billion. These gains offset revenue in Mobile station modem (MSM) chip shipments, which includes the Snapdragon LTE modem, which declined 10% year over year $217 million.
Ahead of the quarter, analysts were also looking to see if the company discusses its $38 billion purchase of Dutch chipmaker NXP Semiconductor (NXPI). Qualcomm said it expects the transaction — subject to regulatory approval — to close by the end of 2017. What’s more, the company said during the quarter, $1.2 billion was returned to shareholders through a combination of buybacks and dividends.