We haven’t heard a peep from Apple (NASDAQ:AAPL) about the newest iPhone lately, but that hasn’t kept the tech community and Wall Street from buzzing with rumors about everything from the company’s possible summer release date or its 4-inch screen.
And, one of the companies with the biggest vested interest in the iPhone is QUALCOMM (NASDAQ:QCOM), which one of Apple’s largest suppliers. The stock has been on a steady decline ever since it reported supply constraints in April, but let’s revisit this company and see if this may be a good buying opportunity.
Founded in 1985, QUALCOMM is an American telecommunications company that specializes in digital wireless telecommunications products. So, this company has a hand in everything from mobile phone components to chat programs to operating systems. Over the past 10 years, the company has made at least nine high-profile acquisitions, increasing the company’s exposure to various wireless technology applications. This company brought in just under $15 billion in sales in 2011 and employs 21,200 worldwide.
In mid-April, management announced good operating results for the second quarter. Compared with Q2 2011, profits more than doubled to $2.23 billion. Adjusted earnings weighed in at $1.01 per share, which topped the 95 cents per share consensus earnings estimate by 6%. Despite this strong bottom-line growth, the company dropped to a one-month low following this earnings announcement. That’s because there are doubts about whether QUALCOMM will be able to meet surging demand for its high-speed networking chips.
Nonetheless, for the company’s next earnings announcement (which is slated for mid-July), analysts forecast 30% sales growth and 19% earnings growth. This company has topped analyst earnings estimates for each of the past four quarters.
QUALCOMM is the second-largest player in the Communications Equipment Industry out of 184 companies. The company is also known for its 1.7% dividend yield, which is the ninth highest in the industry. And this company falls in the top 15% in terms of Price/Earnings to Growth ratio, sales growth and return on equity.
When it comes to earnings growth and long-term growth rate, QUALCOMM falls in the top 20%. This company’s largest competitors are Broadcom (NASDAQ:BRCM), Nokia (NYSE:NOK) and Texas Instruments (NASDAQ:TXN). Of these four companies, QUALCOMM has the highest sales growth, highest gross margin and highest operating margin.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past 12 months, this stock has stayed consistently at a B rating. That’s because buying pressure has held steady and the company has posted consistent operating results. Breaking down the Fundamental Grade, the company has done quite well in terms of its sales growth, earnings momentum and return on equity.
However, QUALCOMM has lackluster earnings growth, cash flow, and hasn’t been able to trounce earnings estimates. The one real area of weakness is this company’s operating margin growth. So, QUALCOMM receives a B for its Fundamentals overall and a B for its Quantitative Grade, which measures buying pressure.
Bottom Line: This stock is a solid buy. Now, there is still plenty of room for improvement, so I would check in on this stock’s Portfolio Grader page from time to time.
Recommendation: B-rated Buy
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