Coronavirus Derails Qualcomm’s Rally, Stock Falls

Ambrish Shah - Author

Feb. 6 2020, Updated 10:11 a.m. ET

On Wednesday, Qualcomm (NASDAQ:QCOM) released its earnings for the first quarter of fiscal 2020 after the closing bell. The quarter ended on December 29, 2019. Notably, the stock fell by around 4% in after-hours trading on the same day. The shares fell due to concerns about the deadly coronavirus. During the quarterly conference call with investors, Qualcomm CFO Akash Palkhiwala said, “There is significant uncertainty around the impact from the coronavirus on handset demand and supply chain.” The company has significant revenue exposure in China. However, the semiconductor company reported upbeat first-quarter results.

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Qualcomm stock rose 2.23% to $90.91 on Wednesday. The stock is trading 2.2% lower in the pre-market session at 7:19 AM ET today. Notably, the stock has gained around 3.04% on a YTD (year-to-date) basis as of Wednesday. In comparison, the S&P 500 has gained around 3.22%, while the Dow Jones Industrial Average has risen 2.64% YTD. Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Nvidia (NASDAQ:NVDA), and Micron (NASDAQ:MU) have gained 12.5%, 8.7%, 6.6%, and 5.6%, respectively, YTD.

Qualcomm’s first-quarter earnings

In the first quarter, Qualcomm beat analysts’ earnings and revenue estimates. The company generated revenue of $5.06 billion—an increase of 5.0% from the first quarter of fiscal 2019. Qualcomm beat Wall Street analysts’ consensus estimate of $4.83 billion. The revenues were within the company’s guided range of $4.4 billion–$5.2 billion.

Qualcomm’s adjusted EPS of $0.99 was above analysts’ estimates of $0.85 per share in the first quarter. The earnings also beat the company’s forecasted range of $0.80–$0.90 per share. However, the first-quarter earnings fell 17.5% YoY (year-over-year) from $1.20 per share.

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The revenue from Qualcomm’s QTL (Qualcomm Technology Licensing) segment, which includes the licensing business, rose 38% YoY to $1.40 billion—in line with analysts’ consensus estimate of $1.41 billion. The revenue from Qualcomm’s QCT (Qualcomm CDMA Technologies) segment fell 3% YoY to $3.62 billion—more than analysts’ consensus estimate of $3.39 billion. The QCT revenue fell YoY due to a reduction in MSM (mobile station modem) unit shipments. In the first quarter, MSM chip shipments fell 17% YoY to 155 million.

According to ZDNet, “5G looks to be paying dividends financially. It also helps that most of Qualcomm’s customers are actually paying for licenses,” tech analyst Patrick Moorhead said. “The company’s 5G outlook still looks quite positive, too, sticking with 5G handset forecast between 175M and 225M units in 2020. I believe Qualcomm is positioned for big 5G volume well given its mainstream and premium digital and end to end RF capability.”

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Second-quarter guidance

Qualcomm has given a revenue guidance of $4.9 billion–$5.7 billion for the second quarter. The company also forecasts QTL revenues of $1.0 billion–$1.2 billion and QCT revenues of $3.9 billion–$4.5 billion. In the second quarter, MSM chip shipments will likely be in the range of 125 million–145 million. Analysts expect second-quarter revenues of $5.2 billion—up 5.9% YoY.

Qualcomm expects its second-quarter non-GAAP earnings to grow to $0.80–$0.95 per share—up by 4%–23% on a YoY basis. Meanwhile, analysts expect a second-quarter adjusted EPS of $0.88—up by 14.3% YoY.

The company has maintained its guidance of 5G global handset shipments of around 175 million–225 million in calendar year 2020.

Peer comparison

In the fourth quarter, Intel generated revenue of $20.2 billion—an increase of 8.3% YoY. The company posted an adjusted EPS of $1.52—higher than analysts’ consensus estimate of $1.25. Notably, the company’s adjusted EPS rose 18.8% YoY in the fourth quarter. Read Why Intel Stock Could Rise on Q4 Earnings Beat to learn more.

In the fourth quarter, Advanced Micro Devices posted revenues of $2.13 billion—a rise of 49.9% YoY. Also, the company reported an adjusted EPS of $0.32 in the fourth quarter—a rise of 300% YoY. Wall Street expected the company to post an adjusted EPS of $0.31 on revenue of $2.11 billion. Read AMD Stock Fell Due to Disappointing Guidance to learn more.

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Qualcomm’s target price

Among the 28 analysts tracking Qualcomm stock, 17 recommend a “buy”—up from 16 in the last month. About 11 analysts recommend a “hold”—down from 13 in the last month. Meanwhile, none of the analysts recommend a “sell.” According to analysts’ consensus, the stock has a 12-month mean target price of $100.77. The average target price is at a 10.8% premium to the closing price of $90.91 on Wednesday. The median target was $100.00 on the same date.

Today, RBC increased its target price on Qualcomm stock from $88 to $92. Cowen and Company increased its target price on the stock from $100 to $105. UBS also increased its target price from $87 to $91. However, J.P. Morgan decreased its target price on the stock from $108 to $105.

Let’s take a look at analysts’ recommendations for Qualcomm’s peers.

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  • Among the 43 analysts providing recommendations on Intel stock, 19 recommend a “hold,” 14 recommend a “buy,” and ten recommend a “sell.” As of Wednesday, Intel was trading at a premium of 1.7% from its target price of $66.21.
  • Among the 40 analysts providing recommendations on AMD stock, 23 recommend a “hold,” 15 recommend a “buy,” and two recommend a “sell.” As of Wednesday, AMD was trading at a premium of 3.3% from its target price of $48.19.
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Stock’s valuation

As of Wednesday, Qualcomm was trading at 21.43x analysts’ fiscal 2020 adjusted EPS estimate of $4.24 and at 14.95x analysts’ fiscal 2021 adjusted EPS estimate of $6.08. Analysts expect the company’s adjusted EPS to rise by 19.8% in fiscal 2020 and 43.4% in fiscal 2021. They also expect Qualcomm’s earnings to rise at a compound annual growth rate of 27.03% in the next five years.

Technical level

As of Wednesday, Qualcomm stock was trading 5.5% below its 52-week high of $96.17. Meanwhile, the stock was trading 82.2% above its 52-week low of $49.91. At the closing price on Wednesday, the stock had a market cap of $103.9 billion.

Based on the closing price on Wednesday, Qualcomm stock was trading 1.0% above its 20-day moving average of $90.04. The stock is also trading 3.5% above its 50-day moving average of $87.85 and 7.8% above its 100-day moving average of $84.35.

Qualcomm’s 14-day relative strength index score is 55. The score indicates that the stock isn’t overbought or oversold. The stock’s lower, middle, and upper Bollinger Band levels are $84.97, $90.04, and $95.11, respectively. On Wednesday, the stock closed near its middle Bollinger Band level, which suggests that it isn’t overbought or oversold.

Qualcomm’s free cash flow increased by 359.2% YoY to $822 million in the first quarter of fiscal 2020. The company’s cash flow from operations increased by 214.0% YoY to $1.12 billion.

Qualcomm returned $710 million to shareholders in the form of dividends in the first quarter of fiscal 2020. On Wednesday, the company’s dividend yield was 2.73%. In comparison, Intel’s dividend yield was 1.96% on the same day.

Read Intel Makes Things Harder for Qualcomm with FTC Appeal to learn more.


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