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Qualcomm Inc Valuation – March 2019 #QCOM

Company Profile (excerpt from Reuters): QUALCOMM Incorporated, incorporated on August 15, 1991, is engaged in the development and commercialization of a digital communication technology called code division multiple access (CDMA). The Company is engaged in the development and commercialization of the orthogonal frequency division multiple access (OFDMA) family of technologies, including long-term evolution (LTE), which is an Orthogonal Frequency Division Multiplexing (OFDM)-based standard that uses OFDMA and single-carrier Frequency Division Multiple Access (FDMA), for cellular wireless communication applications. The Company’s segments include QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI (Qualcomm Strategic Initiatives). The Company also develops and commercializes a range of other technologies used in handsets and tablets that contribute to end user demand, such as certain audio and video codecs, the wireless local area networks (WLAN) 802.11 functionality and volatile and non-volatile memory controllers. Other technologies used by wireless devices that it has developed include operating systems, user interfaces, graphics and camera processing functionality, integrated circuit packaging techniques, sensors and sensor fusion algorithms and application processor architectures.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of QCOM – March 2019

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 $64,787,678,702 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -78.35% Fail
6. Moderate PEmg Ratio PEmg < 20 41.16 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 18.10 Fail
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 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.68 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.30
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $18.86
MG Value based on 0% Growth $11.06
Market Implied Growth Rate 16.33%
Current Price $53.53
% of Intrinsic Value N/A

QUALCOMM, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.73 in 2015 to an estimated $1.3 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.33% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into QUALCOMM, Inc. revealed the company was trading above its Graham Number of $7.63. The company pays a dividend of $2.38 per share, for a yield of 4.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 41.16, which was above the industry average of 35.5. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.72.

QUALCOMM, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.72
Graham Number $7.63
PEmg 41.16
Current Ratio 1.54
PB Ratio 18.10
Current Dividend $2.38
Dividend Yield 4.45%
Number of Consecutive Years of Dividend Growth 17

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $16,294,000,000
Total Current Liabilities $10,556,000,000
Long-Term Debt $15,388,000,000
Total Assets $34,246,000,000
Intangible Assets $9,041,000,000
Total Liabilities $30,629,000,000
Shares Outstanding (Diluted Average) 1,223,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.40
Sep2018 -$3.32
Sep2017 $1.65
Sep2016 $3.81
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.30
Sep2018 $0.83
Sep2017 $3.09
Sep2016 $3.81
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

Recommended Reading:

Other ModernGraham posts about the company

10 Most Overvalued Stocks of the S&P 500 – July 2018
Qualcomm Inc Valuation – May 2018 $QCOM
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
14 Best Stocks for Value Investors This Week – 2/11/17
Qualcomm Inc Valuation – February 2017 $QCOM

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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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