QUALCOMM Incorporated (NASDAQ: QCOM)
Qualcomm is a worldwide American company with its main office in San Diego, California. It was founded in Delaware. It produces software, chips, and services for wireless technology. Qualcomm has prospered for decades by leading the smartphone chipset market, a market where it continues to dominate. As the first company to make chipsets for 5G phones, its position in this market remains unmatched. Moreover, it has made plans for the day when many smartphone functions move to other devices. With this, the company has seen an increase in mentions by 52% over the last day, encouraging investors to wonder whether they should take a position in the company or not. Currently, shares of Qualcomm trade at $123.60.
There are multiple reasons why Qualcomm has generated positive hype recently, here are some of them.
For the fourth quarter of fiscal 2022, which ended on Sept. 25, the chipmaker's non-GAAP revenue rose 22% year-over-year to $11.39 billion, which beat analysts' estimates by $40 million.
Earnings per share grew 3% and its adjusted earnings increased 23% to $3.13 per share, which matched the consensus forecast.
Free cash flow increased 24% year over year to $803 million.
Additionally, Data Bridge Market Research projects a compound annual growth rate of 49% for 5G chipsets.
CEO Cristiano Amon reminded us that Qualcomm's total design wins for the auto industry (everything from in-cabin digital displays to advanced driver-assist systems) stand at $30 billion.
Auto revenue was $1.37 billion in fiscal 2022, a 41% year-over-year increase.
Despite challenges, it will remain profitable even in this downturn, it pays a dividend that currently yields 2.8%, and it repurchases stock with substantially any free cash flow left over after that (which totalled $3.1 billion over the last year).
Analysts expect Qualcomm's revenue and adjusted EPS to grow 5% and 2%, respectively, in fiscal 2023. Based on those estimates, Qualcomm's stock still looks cheap at just 9 times forward earnings.
Although Qualcomm has seen a fair amount of success in the recent past, there are still challenges that the company faces. Here are two reasons it generated negative hype too.
Restrictions on chip sales to China have hurt the company, as it depends on that country for 65% of its revenue.
Management guided earnings per share down 36% to 42% (or down 24% to 30% on an adjusted basis).
While it could take a couple of quarters for the smartphone market to right itself, Qualcomm is still a growth company. 5G upgrades will eventually resume, and the longer-term outlook for the company's smartphone segment to grow at a low double-digit percentage over the next few years remains intact. So does the outlook for growth in the IoT (fitness trackers, smart home appliances, industrial equipment, virtual reality headsets, etc.) and automotive markets, which Qualcomm is pushing hard to make a significantly larger part of its business by the end of this decade. With a rock-bottom valuation, a cash-cow legacy business, exciting secular growth drivers in the auto and industrial markets, and a dividend yield now close to 3%, Qualcomm seems to have a great risk-reward profile at this decade-low valuation.
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