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Wednesday, November 7, 2012

QCOM = awesome

Better than expected quarter numbers. Better than expected Q1 2013 guidance, which brings QCOM to an accelerating earnings growth from a flat to contracting earnings story for the quarter.

I will update this post tonight with numbers, but the story is very much intact. The best part is that the big-boys have to readjust their models , and their automated programs will flash "buy" or "cheap". What ever we call it, the stock will be given a higher multiple.


Today's severe decline should not have happened, but it did. The magnitude was most likely exaggerated because the Nasdaq started breaking some key moving average supports, and of course Apple's decline.

A pure technician poops their pants, and sells. A person who understands the magnitude of a 42% year-over-year smartphone growth, and a projected 1B to 5B unit growth, understands QCOM should be in the 70s not 50s!!! In-turn, QCOM exceeded expectation and analyst guidance by 16%.

Before the manufacturing issue, which looks to have gotten alleviated, QCOM's low-end trailing PE was 19. It would only go below 19ish during recessions. There will NOT be a recession in smartphone/tablet growth.  A very reasonable assumption is that QCOM should, at the very least, start to trade at its old low-end multiple of 19-20.

QCOM will have a trailing EPS of 3.51 (GAAP). Slap a 19 multiple, and we get a stock price of 66. Looking forward, as the holiday season progresses, QCOM will merit a higher stock price, thanks to accelerated earnings. The trailing eps will approach 3.68, which will lead to a stock price of 70 with a multiple of 19.

Of course, I am only assuming the low-end estimate. But doesn't a stock, knee-deep in a sector growing in multiples, deserve a higher multiple?

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