Why Qualcomm Is a Must Buy Stock

Qualcomm (QCOM) announced second quarter ended March 27, 2016 total non-GAAP revenue of $5.54 billion, down 20 percent year-over-year from $6.89 billion during the same period last year and near the upper-end of the revenue guidance for the quarter in the range of $4.9 billion to $5.7 billion. Moving ahead, the company estimates third quarter of 2016 revenue to be in the range of $5.2 billion to $6.0 billion.

Qualcomm declared second quarter of 2016 non-GAAP net income of $1.55 billion or $1.04 of diluted EPS and exceeding the second quarter earnings per share guidance in the range of $0.90-$1.00, up 5 percent sequentially from non-GAAP net income of $1.47 billion or $0.97 of diluted EPS in first quarter of fiscal year 2016.
Going forward, Qualcomm estimates third quarter of fiscal 2016 non-GAAP earnings per share to be in the range of nearly $0.90 to $1.00, down about 4% year-over-year from the midpoint.

The mobile processor manufacturing company reported continued year-over-year decline in its top line primarily due to weaker than estimated key unit shipments and currently feeble global demand for 3G/4G devices.

A closer look

Qualcomm seems to be aggressively minimizing costs with the company’s $1.4 billion of cost lowering plan being well on track to achieve over 16% of QCT operating margins by fourth quarter of 2016 and greater than 20% of the key margins expansion expected to be achieved over a longer term. The total restructuring charges for complete fiscal year 2015 is estimated to be in the range of approximately $300 million to $400 million. Moving ahead, Qualcomm estimates to lower the share-based compensation (SBC) allowances for fiscal 2016 by about $300 million which is in line with the company’s continued commitment towards minimizing 2016 base line spending to nearly $1.1 billion over last year.

Qualcomm’s unique realignment strategy is well under execution and including, aggressive right-sizing of cost structure with approximately $700 million of key savings targeted for 2016, up by $100 million from the company’s past estimate; analyzing any modifications required for the company’s financial and corporate structure to drive significant shareholder’s value; reaffirming its target of offering notable shareholder returns and grew the dividend payment for the quarter by 10% to $0.53 per share while returning a solid $14 billion during fiscal year 2015 and offering over 300% of free cash flows for the period.

The impressive cost-optimization efforts of Qualcomm are well aligned with the company’s intent to deliver sustainable long-term growth while offering attractive shareholder returns in the form of timely dividend payments and strategic share repurchases.

Impressive growth  

Qualcomm has achieved 189 million MSM chip shipments in March quarter of 2016 and expects to register the consecutive next quarter, ending June 2016 total MSM chip shipments to be in the range of 175 million to 195 million. Further, Qualcomm has delivered notable global and year-over-year 3G/4G device shipment to be in the range of 1.625 billion units to 1.725 billion during 2016 from about 1.55 billion in 2015 and depicting over 5% to 11% of yearly growth.

The quarterly net registered device sales as recorded by the company’s licensees segment declined slightly both on a sequential and year-over-year basis mainly due to the continuing weakness in the key customer demand for the advanced 3G/4G devices in China and globally. Despite a tough global operating environment, Qualcomm seems focused on returning a majority of the invested capital to the key stakeholders in form of dividends and planned share repurchases. Therefore, Qualcomm still has $3.3 billion of outstanding share repurchase authorization.

The unique growth strategy of Qualcomm by balancing its total cash flow investments in the company growth and offering attractive shareholder returns is believed to further attract several other investors to invest in this key growth stock and harness long-term superior returns.

Conclusion

Overall, the investors are advised to “Buy” equity in QUALCOMM Incorporated considering the company's strong near-term and longer term growth prospects being supported by a solid financial position with notable total cash of $16.40 billion and smaller total debt position of $11.94 billion only, encouraging the company to make future growth investments. The profit margin of 21.70% seems extremely impressive. Further, the PEG ratio of 1.19 signifies healthy company growth and somewhat better than the industry’s growth average of 0.91 only.
Published on Jun 15, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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