Information Technology Stocks

Qualcomm Inc. Valuation – October 2015 Update $QCOM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Qualcomm Inc. (QCOM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): QUALCOMM Incorporated (Qualcomm) designs, manufactures and market digital communications products and services based on Code Division Multiple Access (CDMA), Orthogonal Frequency Division Multiple Access (OFDMA) and other technologies. The Company’s products consist of integrated circuits and system software used in mobile devices and in wireless networks. The Company operates in three segments, including Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL) and Qualcomm Strategic Initiatives (QSI). QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies. QTL segment provides rights to use portions of its property portfolio. QSI segment is focused on opening new opportunities for its technologies.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of QCOM – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $92,622,373,247 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.26 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 120.42% Pass
6. Moderate PEmg Ratio PEmg < 20 15.97 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.89 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.26 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.50 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

QCOM value Chart October 2015

EPSmg $3.69
MG Growth Estimate 13.60%
MG Value $131.78
Opinion Undervalued
MG Value based on 3% Growth $53.52
MG Value based on 0% Growth $31.38
Market Implied Growth Rate 3.73%
Current Price $58.95
% of Intrinsic Value 44.73%

Qualcomm Inc. qualifies for the both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.69 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.73% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Qualcomm Inc. (QCOM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

QCOM Charts October 2015

Net Current Asset Value (NCAV) $4.20
Graham Number $38.39
PEmg 15.97
Current Ratio 4.26
PB Ratio 2.89
Dividend Yield 2.95%
Number of Consecutive Years of Dividend Growth 13

 

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Most Recent Balance Sheet Figures

Total Current Assets $25,928,000,000
Total Current Liabilities $6,083,000,000
Long-Term Debt $9,913,000,000
Total Assets $52,295,000,000
Intangible Assets $6,664,000,000
Total Liabilities $19,093,000,000
Shares Outstanding (Diluted Average) 1,629,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.10
Sep14 $4.65
Sep13 $3.91
Sep12 $3.51
Sep11 $2.52
Sep10 $1.96
Sep09 $0.95
Sep08 $1.90
Sep07 $1.95
Sep06 $1.44
Sep05 $1.26
Sep04 $1.03
Sep03 $0.51
Sep02 $0.22
Sep01 -$0.38
Sep00 $0.43
Sep99 $0.16
Sep98 $0.09
Sep97 $0.08
Sep96 $0.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.69
Sep14 $3.76
Sep13 $3.07
Sep12 $2.49
Sep11 $1.94
Sep10 $1.64
Sep09 $1.49
Sep08 $1.68
Sep07 $1.46
Sep06 $1.10
Sep05 $0.80
Sep04 $0.50
Sep03 $0.22
Sep02 $0.08
Sep01 $0.04
Sep00 $0.21
Sep99 $0.09

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Defensive Investor – October 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – September 2015
10 Most Undervalued Companies for the Defensive Investor – September 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – August 2015

Other ModernGraham posts about related companies

Infosys Limited Analysis – October 2015 Update $INFY
Teradata Corporation Analysis – September 2015 Update $TDC
Akamai Technologies Inc. Analysis – August 2015 Update $AKAM
Total System Services Inc. Analysis – August 2015 Update $TSS
Acxiom Corporation Analysis – Initial Coverage $ACXM
ACI Worldwide Inc. Analysis – Initial Coverage $ACIW
Motorola Solutions Inc. Analysis – July 2015 Update $MSI
Qualcomm Inc. Analysis – July 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – July 2015 Update $CTSH
Equinix Inc. Analysis – Initial Coverage $EQIX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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