Qualcomm Inc. (QCOM) Quarterly Valuation – March 2014

500px-QualcommLogo.svgBenjamin 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.  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 specific look at how Qualcomm Inc. fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): QUALCOMM Incorporated (Qualcomm) is engaged in designing and manufacturing of digital communications products and services based on code division multiple access (CDMA), Orthogonal Frequency Division Multiplexing (OFDMA) and other technologies. The Company operates in four segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); Qualcomm Wireless & Internet (QWI), and Qualcomm Strategic Initiatives (QSI). The Company develops and supply integrated circuits and system software based on CDMA, OFDMA and other technologies for uses in voice and data communications, networking, application processing, multimedia and global positioning system products. In November 2013, the Company sold its subsidiary, Omnitracs, Inc to Vista Equity Partners.

QCOM Chart

QCOM data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $79.05
MG Value $140.86
MG Opinion Undervalued
Value Based on 3% Growth $53.05
Value Based on 0% Growth $31.10
Market Implied Growth Rate 6.55%
Net Current Asset Value (NCAV) $6.72
PEmg 21.61
Current Ratio 3.87
PB Ratio 3.60

Balance Sheet – 12/29/2013

Current Assets $20,585,000,000
Current Liabilities $5,313,000,000
Total Debt $0
Total Assets $46,282,000,000
Intangible Assets $6,702,000,000
Total Liabilities $9,255,000,000
Outstanding Shares 1,687,000,000

Earnings Per Share

2014 (estimate) $4.54
2013 $3.91
2012 $3.06
2011 $2.70
2010 $1.96
2009 $0.95
2008 $1.90
2007 $1.95
2006 $1.44
2005 $1.26
2004 $1.03

Earnings Per Share – ModernGraham

2014 (estimate) $3.66
2013 $2.98
2012 $2.39
2011 $2.00
2010 $1.64
2009 $1.49

Dividend History

QCOM Dividend Chart

QCOM Dividend data by YCharts


Qualcomm is an interesting company that should catch the attention of all Enterprising Investors after passing all of the requirements for the investor type.  The Defensive Investor isn’t quite as interested, as the company is trading at high PEmg and PB ratios at this time.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as some competitors through a review of ModernGraham’s valuation of Intel Corp (INTC) and ModernGraham’s valuation of Texas Instruments (TXN).  From a valuation side of things, the company appears to be solidly undervalued after growing its EPSmg (normalized earnings) from $1.64 in 2010 to an estimated $3.66 for 2014.  This high level of demonstrated growth outpaces the market’s implied estimate of only 6.55% earnings growth and leads the ModernGraham valuation model to return an intrinsic value estimate that is well above the market 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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Qualcomm Inc. (QCOM) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.