1999 was a heck of a year, with the insane dot-com bubble and companies like Qualcomm (NASDAQ:QCOM) riding high as shareholders celebrated remarkable gains. Qualcomm stock headed towards the $100 level. Only to have it fall to the teens by 2002, as the bubble burst and investors ran for the exits.
Furthermore, QCOM stock made another attempt to break $100 in 2014, and then again in April of last year. However, it all came to no avail. Now, there’s another opportunity to capture the elusive three-digit price point, as the smartphone chipmaker will report its first-quarter fiscal 2020 earnings on Feb. 5.
That said, will it finally attain this long-standing milestone? Or disappoint shareholders once again?
Strong Momentum in a Momentous Year
2019 was great for the stock market generally. But anyone who owned Qualcomm stock through the year enjoyed a particularly powerful run-up from around $56 to $88. Coronavirus concerns seem to have stalled the share price in January’s final weeks. However, the imminent earnings announcement could start QCOM’s engine back up again.
As you may recall, April 2019 provided a fiscal windfall for Qualcomm — and a sense of relief for shareholders — as the company finally ironed out its legal issues with rival Apple (NASDAQ:AAPL). Qualcomm’s fiscal-year 2019 fourth-quarter earnings release reminded stockholders of how it went down, and how it benefited the company:
“In April 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties… In the third quarter of fiscal 2019, we recognized licensing revenues of $4.7 billion resulting from the settlement…. our QTL results for the third and fourth quarter of fiscal 2019 included royalties from Apple and its contract manufacturers for sales made in the June 2019 and September 2019 quarter, respectively.”
CEO Steve Mollenkopf, meanwhile, reminded investors of just how great 2019 was. However, he also essentially conceded that Qualcomm’s success in 2020 will depend heavily on developments in the important 5G network:
“We exit the fiscal year having successfully executed on our strategic priorities: helping to drive the commercialization of 5G globally, completing a number of important anchor license agreements and executing well across our product roadmap. Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020.”
Too Much 5G Reliance?
With the company’s CEO strongly hinting that Qualcomm’s present and future growth is highly 5G-dependent, informed investors might wonder whether February’s earnings announcement could prove to be a setup for disappointment. After all, it does appear that the company is putting all of its eggs in the 5G basket.
Consider, for example, J.P. Morgan analyst Samik Chatterjee, who recently assigned QCOM an overweight rating along with an optimistic price target of $108. Chatterjee, as is typical of tech-stock analysts lately, looks to the 5G boom as his rationale for his ongoing optimism:
“With recent strong results and guidance from Skyworks (NASDAQ:SWKS) and Qorvo (NASDAQ:QRVO) bearing proof to the robust pipeline of 5G smartphone launches planned by the OEMs as well as to the content opportunity in 5G smartphones, we are increasingly positive relative to Qualcomm shares heading into the earnings announcement where we expect a strong guide for the March quarter.”
Skeptics might wonder whether the coronavirus outbreak will hamper the 5G tailwind and dampen investors’ enthusiasm come earnings-announcement time. Chatterjee acknowledges this concern, but emphasizes its impermanence.
“We will continue to monitor the coronavirus-related risk to our 5G unit forecasts but will view that as a temporary push out to the replacement cycle,” he said.
The general analyst consensus for the upcoming earnings report expects adjusted earnings per share of $0.85. But, this is much lower than the $1.20 per share reported during the same quarter of the prior year. I view this as a low expectation, and therefore a setup for a handy earnings beat. Moreover, I tend to concur with Chatterjee in his assessment that 5G will remain significant and that the unfortunate virus outbreak will only provide a temporary headwind for Qualcomm stock and its shareholders.
The Takeaway on Qualcomm Stock
If there ever was an opportune time for QCOM to finally surpass $100, I believe this is it. 5G will remain a powerful force for the tech sector and for Qualcomm stock throughout the year.
In turn, this will take the smartphone user’s experience — and the share price — to the next level in 2020.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
