Sunday, July 28, 2013

Qualcomm Beats 2Q13 Earnings and Raises Foward Guidance

Qualcomm Inc. reported 2Q13 earnings on July 24 that shows revenues up by 35% year-over-year. Revenue was reported for the quarter at $6.2BB versus street expectations of $6.1BB. The rise in revenue comes primarily from the company’s CDMA, its mobile hardware division, which has 47%year-over-year growth. Qualcomm’s technology license division was up by 17% and its hardware business, which represents the company’s net revenue, was up the most. Qualcomm‘s 35% year-over-year revenue growth was offset by a 40.75% increase in total operating costs which was expected as they are shifting their strategy to lower margin system-on-chips for emerging market devices. Non-GAAP EPS was reported at $1.03 up 22.2% year-over-year, slightly lower than our $1.09 estimate and in-line with street consensus of $0.91. Over the quarter Qualcomm repurchased 16.7 million shares for $1.04B and increased their dividend from $0.25 to $0.35 a share.

Paul Jacobs, the CEO, stated that the future possibilities in mobility are near endless (HD audio, proximity based communication, wireless charging, ultra-HD video, etc). This seems likely due to a global geographic basis that 80% of the world’s population resides in emerging regions. 3g/4g mobile computing technology and devices are still in an early stage of adoption in the majority of the world and offer attractive growth potential. The company also estimates that high end device sales should improve by around 15.8% by the end of the fiscal year due to an increase in projected disposable income in foreign countries. 

Initial guidance was offered for 4Q13 at $5.9B-$6.6B sales and $1.02-$1.10 Non-GAAP EPS. In addition, the company raised previous guidance for FY 13 to $24.3B- $25.0B up from $24.0B- $25.0B and narrowed in on FY 13 EPS to $4.48-$4.55 up from $4.40-$4.55. 

Qualcomm has traded at an average 3-year historical price to earnings of 15.9x. We view the current ttm price to earnings of 17.2x as justified due to its industry leading position in the market. Our FY EPS of $4.60 assumes a p/e multiple of 16.5x which leaves us constructive on the stock. We reiterate our Buy rating with a blended p/e, trading comp, dcf, and ev/ebitda price target of $75.33 representing a 21% upside.

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