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Qualcomm Blows Past Estimates Again

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Riding the revolution in mobile computing and smartphone technology, a number of companies have been able to grow to spectacular proportions. Qualcomm (NASDAQ: QCOM) has been beating analyst estimates consistently over the last few years, as well as growing earnings impressively. The company, which is a main supplier for smartphone and tablet makers worldwide, looks well positioned for growth and profitability this year. While the recent run-up in share price has left the company trading at a bit of a premium to the industry, it seems fair to expect further upside for the stock. 

Stock at a Glance

Qualcomm designs, develops, and manufactures digital communications equipment and is probably best known for its processor chips that are used in a range of mobile computing devices manufactured by Apple and Samsung among other big names. Qualcomm has a market cap of nearly $110 billion and a dividend yield of around 1.5%. With a beta of 1.27, the stock is slightly more volatile than the overall market. In the last twelve months the stock has rallied around 8%.

Earnings and Cash Position

Once again, Qualcomm delivered blowout earnings for the quarter. For Q1 2013 delivered top line and bottom line growth well above analyst estimates. EPS came in at $1.26, beating by about 11%, and was up 30% compared to the same period a year ago. Revenue was up 29% for another record quarter. Despite Apple (NASDAQ: AAPL) cutting orders for iPhone 5 parts due to weaker-than-expected demand, which has many investors spooked, Qualcomm shipped 182 million MSM chips which was above the company’s prior expectations. As we all know by now, Apple has been slammed by the markets in recent months due to fears of slowing sales, having had over a third knocked off their stock price since setting highs of around $700 in September of last year. Apple missed EPS estimates in the 2nd half of 2012, but had a healthy beat to start off this year. Qualcomm hasn't been too badly affected by the Apple sell-off, as they supply chips to several other major tech companies as well.

Qualcomm's management, while remaining cautious due to macro-economic difficulties, has reaffirmed its device shipment estimate, and raised fiscal 2013 revenue guidance by $5 million. The company raised its EPS target by 13 cents for a full-year guidance between $4.25 and $4.45. The company has a very healthy balance sheet with over $12 billion in cash and only around $60 million debt. For the report, the company had an impressive $2 billion in operating cash flow up 11% YoY. This gives the company plenty of means to invest in R&D, necessary to remain competitive, although R&D spending was down a bit sequentially.

Valuations and Metrics

Currently trading at a bit of a premium to the 14.67x industry P/E average, Qualcomm has a P/E of 18.12. However, the forward P/E is only 13.21. The price to sales is also a little high at 5.66, but the operating margin is very impressive at around 30% and rising. The return on equity is pretty decent at 17.46. NVIDIA (NASDAQ: NVDA), who is attempting to compete with Qualcomm’s mobile chips, trades at 15.38x earnings and only 1.87 to sales. Yet, they don’t maintain the kind of margins or market share that Qualcomm achieves and don’t have nearly the same kind of size. NVIDIA is, according to some, having a hard time making the transition from a PC graphic chip manufacturer to a relevant player in the mobile processing arena, although their Tegra line of mobile CPU's is starting to gain some traction in the smartphone market.

Bottom Line

Again, Qualcomm delivered blowout earnings in the most recent report. Surfing the smartphone and mobile computing revolution, earnings were up in double-digit territory yet again. The prospects for the coming year are encouraging despite tough macro-economic circumstances, and it looks like Qualcomm could deliver some more upside in the near future.

DUJames has no position in any stocks mentioned. The Motley Fool recommends Apple and NVIDIA. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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