Company Name: Qualcomm Inc
Entry Price: $144
Target Price: $185
Projected Yield: 28.40%
Time Line: 3 to 6 months
Position Size: 2%.
Qualcomm, Inc. (QCOM.US) is a US multinational corporation, which manufactures telecommunication equipment, focusing on microchips and microcircuits. In addition, Qualcomm works with tech licensing and software development for businesses and public institutions.
What's the Idea?
Capitalize on a stock that may rise with more 5G coverage and the lack of digital solutions in the automotive industry.
Buy Qualcomm Shares >>
Why Trade Qualcomm?
Reason 1: Switching to 5G
5G expansion is a positive aspect for Qualcomm, as it is a leader in providing electronic modules for 5G based smartphones and IoT devices. In October 2020, the company also started producing hardware and software for 5G base stations used for both public, private, and government networks.
As a result, Qualcomm customers will be able to deploy a 5G based platform of any size and scale, suitable for IoT, video surveillance, autopilot systems, unmanned delivery, and other popular solutions.
Over the last few years, major US mobile network providers, such as AT&T, Verizon, and T-Mobile, invested dozens of billions of dollars into deploying next-gen networks. This is quite in line with what smart device manufacturers do, as more smartphones are getting 5G support, thus actively promoting the new communication standard.
The annual growth for the 5G compatible device semiconductor market is seen by Grand View Research as extremely high, namely 63.40%, during 2020-2027. This may well boost Qualcomm's earnings in the midterm.
Reason 2: Automotive Solution Development
Over the last few years, with a rapid automotive industry development, autopilot and driver assistance systems have become much more in-demand. Qualcomm is targeting this niche, too:
in January 2021, it announced Snapdragon Automotive Cockpit, a next gen chip system, which is able to provide:
- Managing multiple engine control units
- Information system control
- Multisensor data processing
- Support for computer vision and AI systems
The plans already sound great, as Qualcomm announced supplying Snapdragon Automotive Cockpit for the next gen cars manufactured by General Motors, as well as for Amazon's Alexa Custom Assistant. Another partner agreement was signed with Veoneer, as the two companies will jointly work on producing hardware and software for Advanced Driver Assistance Systems (ADAS).
Qualcomm is also ready to actively expand its presence in the automotive semiconductor market in the short term, right at the time when there is actually a shortage of such solutions.
Reason 3: Acquisition of Nuvia
January 2021 was very rich in positive news for Qualcomm: apart from multiple promising agreements, the company acquired NUVIA, a high performance computing startup, which is estimated at $1.40B excluding working capital and other expenses. In the short term, this should reduce Qualcomm's dependence on ARM, a UK company manufacturing 64-bit RISC processors that was acquired by Nvidia in September 2020.
In the future, Qualcomm will have an opportunity to move to its own architecture, as many Nuvia solutions will be used in Qualcomm's flagship CPU's for smartphones, laptops, and car information systems.
Reason 4: Risks
In December 2020, Qualcomm stock fell by 6.30%, from $155.75 to $143.81.
The selloff was heavily due to Apple starting developing a modem designed to replace Qualcomm's components. This is what Johnny Srouji, VP of Hardware, said at an employee meeting, Bloomberg reports. It is yet unknown when the new device will be released, but, in the meantime, Apple is no longer using Intel CPU's, relying only on its own ones.
Patent license earnings received from Apple account for 11% of Qualcomm's profit, so this should be of course taken into account before deciding to invest into this stock.
Reason 5: Financial Performance
The company's earnings in 2020 increased by 8.90%, while the operating income decreased by 2.90% to $7.99B, and the net income reached $ 6.73B, going up by a massive 58%. Meanwhile, the operating profit margin and the net profit margin amounted to 29% and 25.20%, respectively, being quite close to the competition.
Qualcomm has a good financial position, as the debt liabilities are $15.70B and the amount of liquid funds is at $12.30B. Qualcomm has a stable cash flow, that being $4.98B over last year.
When the latest report was released on February 3, the stock fell by 13% from $162.30 to $145.45.
However, the company's earnings in Q1 2021 grew by 67% YoY, while the EPS increased from $0.99 to $2.17 YoY, although this results were in line with analyst expectations. Qualcomm's management expects positive news in Q2 2021, with the earnings at $7.60B and the EPS of $1.65.
Reason 6: Outlooks and Assessments
The ratios for Qualcomm are currently as follows:
- EV/S: 6.1x
- EV/EBITDA: 17.8x
- Forward PE: 17.8x
This is slightly below the industry average, which means the company is somewhat underpriced. Since early this year, some investment companies raised the target price for the stock: KeyCorp moved it to $180, Raymond James, to $190, Mizuho went for $170, while Cascend Securities believes it should reach $185. The only company to decrease the forecast value was Morgan Stanley, setting it down from $171 to $167.
Still, one can easily see a positive trend in the estimations, which means this could be a nice investment opportunity.
How to Use the Idea?
- Buy Qualcomm stock at $144.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts.
- Sell the stock when the price is at $185 per share.
How to Buy Qualcomm Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: : In the Web Terminal section, type QCOM.US (Qualcomm ticker in the NASDAQ) in the search box, and select Qualcomm, Inc in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type QCOM.US (Qualcomm ticker in the NASDAQ) and select Qualcomm, Inc in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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