As 5G Rolls out, Qualcomm Stock Is in the Catbird Seat

Qualcomm (NASDAQ:QCOM) will benefit greatly from next year’s worldwide 5G telecom device adoption. The market is starting to realize this. Qualcomm stock is up by almost 49% year-to-date.

As 5G Rolls out, Qualcomm Stock Is in the Catbird Seat

Source: nikkimeel /

In my last article on QCOM stock in late September, I discussed how Qualcomm’s future is dependent on the worldwide adoption of 5G devices. Since then Qualcomm stock has risen over 10%.

Qualcomm’s earnings and cash flow released on Nov. 6 showed a turnaround has continued. Revenue was up 7% YOY for its fiscal year ending September on a GAAP basis. However, non-GAAP net income was down 19% YOY.

But here is something interesting. Qualcomm has been buying back a lot of its stock. As a result, diluted earnings per share did not fall anywhere near as much as net income. For example, earnings per share for the year fell only 2% from $3.62 per share to $$3.54.

I like to focus on cash flow since earnings statements contain all kinds of GAAP and non-GAAP exceptions and additions. Here the results were much more dramatic.

In the latest quarter, Qualcomm made $910 million in free cash flow vs. a loss of $582 million last year. In fact, over the year ending September, Qualcomm made $6.4 billion in free cash flow vs. just $3.1 billion. This is a gain of over 100% this year.

Shipments Projections and Qualcomm Stock

Qualcomm 3G - 5G estimatesQualcomm’s presentation showed a slide that indicates that 3G, 4G and 5G device estimates will rise 3% in 2020. The total will be 1.75 billion and 1.85 billion devices.

That is good news for Qualcomm. In fact, a good portion of the world still has not upgraded to smartphones. This is an underlying catalyst for Qualcomm’s recurring earnings.

In fact, for the first time, Qualcomm provided an estimate of 5G phone device adoption worldwide. Qualcomm expects between 175 million to 225 million phones to be on 5G by the end of 2020.

The accelerating commercialization of 5G will help drive QCOM’s earnings. Qualcomm says that as it leads the world to 5G, this will lead to new opportunities in connected cars, remote delivery of health care services, and IoT (Internet of Things), including smart cities, homes, and wearables.

Better Earnings and QCOM Stock

Qualcomm Return of Capital Payments

Source: Qualcomm presentation FY Q4 2019

Qualcomm is pretty conservative when it provides projections. For example, it gave guidance that the September quarter revenue would be between $4.4 billion to $5.1 billion. But actual revenue came in at $4.8 billion, better than the midpoint.

For the coming quarter ending Nov. 30 (its fiscal Q1 2020), Qualcomm is projecting revenue between $4.4 billion and $5.2 billion. This is slightly higher than last quarter. But more importantly, free cash flow is likely to be robust, just like in the September quarter.

As a result, Qualcomm expects to continue its share buyback and increase its dividends. The table below shows that Qualcomm has been dramatically buying back its shares and returning capital to shareholders this way.

The Bottom Line on  Qualcomm Stock

This will lead to a higher QCOM stock price I believe. For example, with lower shares outstanding, not only do earnings per share improve, but it allows Qualcomm to increase the dividends per share.

Right now Qualcomm has a 2.90% dividend yield. Its buyback of almost $1.8 billion in shares divided by the $103 billion market value gives it a buyback yield of over 1.7%. So the Total Yield to shareholders from the return of capital payments in dividends and buybacks is over 4.6%.

That total yield should help Qualcomm stock do quite well over the next year.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review hereThe Guide focuses on high total yield value stocks, which includes both high dividend and buyback yields. In addition, subscribers a two-week free trial.

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