Information Technology Stocks

Qualcomm Inc Valuation – February 2016 $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 Companies Benjamin Graham Would Invest In Today – February 2016.  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) is engaged in providing third-generation (3G), fourth-generation (4G) and next-generation wireless technologies. The Company’s products include 2net, AllPlay, Brew, Gobi, Halo, HealthyCircles, Hy-Fi, IPQ, IZat, Pixtronix, Powerline, QChat, QLearn, Small Cells, Snapdragon, Vive, RaptorQ, Vuforia and WiPower. AllPlay helps manufacturers create devices and services. It also helps developers create Android and iPhone operating system (iOS) music streaming applications. The Company’s Brew platform enables feature phone applications, such as gaming, messaging, Web browsing and social networking. Qualcomm Gobi modems connect users devices to 3G, 4G, and 4G long-term evolution (LTE) networks. Qualcomm Halo technology eliminates the need for plug-in cords for recharging in electric and hybrid vehicles. Qualcomm Powerline solutions turn electrical outlets into broadband connection points, creating networks by plugging in.

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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

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 $64,999,517,101 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.13 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 142.29% Pass
6. Moderate PEmg Ratio PEmg < 20 11.48 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.19 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 3.13 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.72 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 February 2016

EPSmg $3.80
MG Growth Estimate 7.90%
MG Value $92.28
Opinion Undervalued
MG Value based on 3% Growth $55.06
MG Value based on 0% Growth $32.28
Market Implied Growth Rate 1.49%
Current Price $43.61
% of Intrinsic Value 47.26%

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

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.49 in 2012 to an estimated $3.80 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.49% 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.

Stage 3: Information for Further Research

QCOM charts February 2016

Net Current Asset Value (NCAV) $0.23
Graham Number $41.37
PEmg 11.48
Current Ratio 3.13
PB Ratio 2.19
Dividend Yield 4.27%
Number of Consecutive Years of Dividend Growth 14

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $20,338,000,000
Total Current Liabilities $6,503,000,000
Long-Term Debt $9,950,000,000
Total Assets $50,229,000,000
Intangible Assets $9,737,000,000
Total Liabilities $19,988,000,000
Shares Outstanding (Diluted Average) 1,517,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.76
Sep2015 $3.22
Sep2014 $4.65
Sep2013 $3.91
Sep2012 $3.51
Sep2011 $2.52
Sep2010 $1.96
Sep2009 $0.95
Sep2008 $1.90
Sep2007 $1.95
Sep2006 $1.44
Sep2005 $1.26
Sep2004 $1.03
Sep2003 $0.51
Sep2002 $0.22
Sep2001 -$0.38
Sep2000 $0.43
Sep1999 $0.16
Sep1998 $0.09
Sep1997 $0.08
Sep1996 $0.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.80
Sep2015 $3.73
Sep2014 $3.76
Sep2013 $3.07
Sep2012 $2.49
Sep2011 $1.94
Sep2010 $1.64
Sep2009 $1.49
Sep2008 $1.68
Sep2007 $1.46
Sep2006 $1.10
Sep2005 $0.80
Sep2004 $0.50
Sep2003 $0.22
Sep2002 $0.08
Sep2001 $0.04
Sep2000 $0.21

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016
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

Other ModernGraham posts about related companies

Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY
Total System Services Inc. Valuation – November 2015 Update $TSS
International Business Machines Corp Valuation – November 2015 Update $IBM
Motorola Solutions Inc. Valuation – November 2015 Update $MSI
Qualcomm Inc. Valuation – October 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
Infosys Limited Analysis – October 2015 Update $INFY

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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