After trying to break above the $80 level, QUALCOMM (NASDAQ:QCOM) finally succeeded this week. And with no litigation worries against it on the horizon, QCOM stock just might hold above the $80 and toward its 52-week high just above $90 in the weeks ahead.
I’ve got a handful of reasons why I’m so bullish on Qualcomm stock. Here are some of them.
To begin with, let’s look at its dividend. Qualcomm is scheduled to report quarterly earnings on Nov. 6 after the market closes. As a bonus to investors holding the stock as a shareholder of record Dec. 5, collecting a 62 cents a share quarterly dividend is an incentive. The yield of ~3% is modest but signifies the company’s commitment to returning cash to shareholders. It also suggests the company is confident in the revenue growth ahead for 2020.
Then there’s QCOM’s product line-up, including Qualcomms Snapdragon 855 CPU refresh for smartphones. As users go through this year’s great smartphone refresh, Qualcomm is poised to report stronger chip sales from its mobile division.
In the mobile PC space, Microsoft’s (NASDAQ:MSFT) decision to power the Surface Pro X, starting at $999, with a Snapdragon 8cx processor is a bold move. It also solidifies Qualcomm’s positioning in the ARM-based computing market. So, if the mobile device market is saturated and sales are stagnating, Qualcomm may count on the growing demand for Surface tablet computers for steady growth.
Wall Street is cautious with QCOM stock, with a price target that suggests zero upsides ahead. This neutral view and lack of recent analyst reports on Qualcomm may change. Despite this, investors modeling revenue growth in at least the mid-single digits will realize QCOM stock is undervalued by around 10% (per finbox.io). In a 10-year DCF EBITDA Exit model, investors need to assume a discount rate of 8.5%-9.5% and a terminal EBITDA multiple of 11.8x. Assigning a mid-range multiple is suitable if investors assume the ongoing U.S.-China trade war will continue to lock Huawei out of the market.
In September, Huawei announced a new Kirin 990 CPU that supports the next-generation 5G. This is an impressive chip that competes with Qualcomm’s Snapdragon 955 chip. It is a 7-nanometer chip that is faster and more energy-efficient than its rivals. By supplying the flagship Mate 30 with such a chip, Huawei hopes to win against Apple’s iPhone dominance. But for now, U.S. restrictions against the firm will limit Kirin’s competitive pressures against Qualcomm.
Although Netgear (NASDAQ:NTGR) plunged last week after reporting quarterly results, its foray into Wi-Fi 6 cannot be ignored. Similarly, Qualcomm is leading the way with Wi-Fi 6. And as the next era of connectivity builds momentum, the company will benefit from the explosion in IoT and Wi-Fi 6 getting implemented in cars and smartphones. Needless to say, 5G connectivity in automobiles will add positively to Qualcomm’s growth. As ADAS (autonomous driving) continues to develop, demand for Qualcomm solutions will trend higher.
Your Takeaway on QCOM Stock
Investors who picked up QCOM stock at a $50 low back in February are happy to continue holding. But those who missed the year-long run-up will need to decide when is the right time to buy the stock. At a forward P/E of 19x, Qualcomm is not expensive. It will continue to prove its worth. The next earnings report might solidify investor confidence, sending the stock higher.
As of this writing, the author did not hold a position in any of the aforementioned securities.