Evercore Equity Research analysts Mark McKechnie and Zachary Amsel maintain an Overweight rating for Qualcomm, Inc. (NASDAQ:QCOM) as the company beats expectation for December’s earnings.
We maintain our Overweight rating and $80 price target on Qualcomm, Inc. (NASDAQ:QCOM) following a solid yet managed report in what we view as a challenging environment. Qualcomm’s December adjusted EPS beat was on in-line sales, opex control and higher investment income. March guidance was below the Street as expected, but FY14 EPS guidance was raised a nickel to $5.00-$5.20. We see solid valuation support here in the low-70’s or ~ 13x our FY15 EPS of $5.50, but admittedly look to 2H’14 for meaningful catalysts for a sustained move from here.
Barron’s Mailbag June 1962: Irving Kahn On False Comparisons
The following letter from Irving Kahn appeared in the June 25, 1962, issue of Barron’s. Irving Kahn wrote to Barron's criticising the publication’s comparison of the 1962 market crash to that of 1929. Irving Kahn points out that based on volume and trading data, the 1962 decline was a drop in the ocean compared to Read More
Qualcomm’s earnings analysis
Adjusted EPS of $1.22 net of a $0.04 of various gains on $6.6B in sales beat the street’s $1.18 on $6.7B. The ~ $0.04 beat was driven by lower gross margins, opex control (down 3.5% ex items q/q vs guide for flat q/q), and better investment income ($255M vs. our expected $150M). Net cash grew by $2.2B q/q to $31.6B or $18.02 per share, with $8.7B domestic.
Qualcomm’s revenue metrics in-line; QCT margins beat
QTL revenues of $1.9B were in-line with industry units of 278M beating slightly and offset by ASP of $222 missing slightly for in-line QTL EBT. QCT revenue was in-line at $4.6B with better units (213M vs. estimated 203M) offset by lower ASP ($21.70 vs. our $22.50) which we attribute to a higher mix of thin modems (i.e. Apple Inc. (NASDAQ:AAPL)) and emerging markets, but margins of 19.6% beat our 17.4% forecast.
George Davis a belt tightener?
On the margin, we like Qualcomm’s ability to protect EPS through opex control/ share repurchases. Qualcomm, Inc. (NASDAQ:QCOM) is not backing off its FY14 opex growth target of +5-7% (vs. +20% prior yrs), but we take comfort in knowing the company can cut if necessary to protect earnings. QCT management has pointed to a rationalization (our words) of its chip portfolio as a key area for efficiencies – we suspect that played a part this quarter and could deliver QCT margin upside in the future.
Our FY14 forecast includes a steep jump in Q4FY14 earnings – $1.20 March, $1.23 June and $1.36 in September which we think is doable on the back of Samsung’s GS5 launch and China’s TD-LTE acceleration. Our biggest downside concern would be emerging markets – to wit, Qualcomm, Inc. (NASDAQ:QCOM)’s CY14 3G/4G forecast of ~ 1.26B includes 810M or 20% y/y growth from emerging markets (mainly China) and 450M or 6% growth from developed countries.
Upcoming potential catalysts: MWC (late Feb), GS5 launch (June), new iPhones (Fall).