Why Qualcomm Is Not A Sell

Satisfactory Essays
Despite the massive stock market rally last year, a number of stocks significantly underperformed the broader markets and Qualcomm (NASDAQ: QCOM) was among those market laggards. Over the last few months, however, the stock is seeing some momentum build up. Being a leader in the smartphone application processor market, it approximately has a commanding 54% market share (by revenues), followed by Apple (NASDAQ: AAPL) and Media Tek with 16% and 10% market shares respectively. With increasing demand for advanced mobile devices – including smartphones-that can support high speed Internet and computing tasks, the company clearly controls a major portion of an important and fast-growing market of current times. Below I discuss a few reasons why Qualcomm should return respectable gains in near term.
Continuously growing revenues
As illustrated in the chart below, Qualcomm has been continuously growing its revenues over the last five year, even though its quarterly earnings have languished in $1-$2 billion range since late 2010. Nevertheless, it still fares better than some of its industry peers, those barely reporting any earnings at all.

In the fiscal-first quarter of 2014, the company reported record revenues of $6.62 billion, up 10% from the same period a year ago. The growth was mainly attributed to stronger-than-expected device sales and Mobile Station Modem (MSM) chip shipments during the quarter. The result piped analysts' consensus estimate for sales by 0.65% but significantly surpassed the earnings estimate by 14.21%, according to data compiled by Reuters (source) . As a matter fact, it has a rather strong history of meeting/surpassing estimates for both revenues and earnings of late, which speaks volumes of its business tran...

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...rly dividend by 20% to $1.68 per share that yields at 2.20%. With this hike, the five-year average dividend growth rate stands tall at 20.24% per year.

Second, it extended its share repurchase program by $5 billion to a total of $7.8 billion. This is in addition to the $2 billion the company spent last year in stock-buybacks. Both these measures should add value to the stock.

Bottom line: With continuously growing revenues and increasing popularity of its 64-bit chipsets and LTE technology, Qualcomm will be able to sustain its growth in future. There is no doubt that the company has its heart in the right place and is moving in the right direction that would eventually see growth in its bottom-line too. Of course, the recent dividend increase and stock buyback announcement only adds to its appeal and shows the management is committed to rewarding its shareholders.
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