“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, February 18, 2019

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

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"Trading Capital Management"



Option Trade – QUALCOMM, Inc. (NASDAQ:QCOM) Calls

Wednesday, February 20, 2019

** OPTION TRADE: Buy the QCOM MAY 17 2019 52.500 CALL at approximately $2.40. Place a pre-determined sell at $4.80.

Also include a protective stop loss of $0.95.

Headquartered in San Diego, QUALCOMM, Inc. (NASDAQ:QCOM), U.S. mobile chipset giant, announced its second-generation 5G modem ON February 19, known as the Snapdragon X55. This modem not only supports 5G connectivity (and it's improved over what the company offered with the Snapdragon X50), but it can also work with older networks, too.

Qualcomm says that the Snapdragon X55 can support 5G download speeds of up to 7 gigabits per second and upload speeds of 3 gigabits per second. For some perspective, the company indicated that the Snapdragon X50 offers peak theoretical download speeds of 5 gigabits.

Qualcomm says that the baseband processor of the Snapdragon X55 is manufactured using an undisclosed 7-nanometer manufacturing technology.

The move to 7-nanometer technology should allow for improved power efficiency and smaller chip area, all else being equal.

Given that the Snapdragon X55 will primarily be powering smartphones -- devices that are fundamentally space and power constrained -- the transition to the latest 7-nanometer technology is a good thing for the product.

About QUALCOMM…..

QUALCOMM Incorporated designs, develops, manufactures, and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access, and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products.

Past Performance…..

QUALCOMM last released its quarterly earnings results on Wednesday, January 30th. The wireless technology company reported $1.20 EPS for the quarter, beating the consensus estimate of $1.09 by $0.11. QUALCOMM had a net margin of 10.03% and a return on equity of 36.66%.

The company had revenue of $4.80 billion for the quarter, compared to analyst estimates of $4.89 billion. During the same quarter last year, the firm posted $0.98 earnings per share. The company’s quarterly revenue was down 21.3% compared to the same quarter last year. Analysts predict that QUALCOMM, Inc. will post 3.23 earnings per share for the current fiscal year.

Future Earnings…..

Wall Street brokerages expect that QUALCOMMwill announce $0.71 earnings per share (EPS) for the current fiscal quarter. Four analysts have issued estimates for QUALCOMM’s earnings. The lowest EPS estimate is $0.69 and the highest is $0.76. QUALCOMM posted earnings per share of $0.80 during the same quarter last year, which suggests a negative year-over-year growth rate of 11.3%.

The firm is expected to issue its next quarterly earnings results on Wednesday, April 24th.

In the second quarter of fiscal 2019, Qualcomm expects its revenue to fall 7.7% YoY (year-over-year) to $4.8 billion at the midpoint, in line with analysts’ estimate of $4.8 billion. The 7.7% fall is better than the double-digit declines the company reported in the second quarters of fiscal 2018 and fiscal 2016. Its slightly better guidance shows that the move to 5G is helping it offset weak smartphone demand.

Moving Forward…..

On its fiscal 2019 first-quarter earnings call, Qualcomm’s CFO, George Davis, stated that the company expects 3G, 4G, and 5G device shipments to increase 5% YoY in 2019, with handset shipments increasing 1% and non-handset shipments increasing 27%.

In the handset market, Davis expects replacement rates to increase as consumers switch to 5G devices and demand picks back up in China. In the non-handset market, he expects demand to be driven by strong growth in the industrial IoT space.

Influencing Factors…..

Why the product announcement important….

  • ….. it shows that Qualcomm is still at the top of its game in terms of modem technology -- the Snapdragon X55 appears to be the most advanced cellular modem that's been announced. Having a strong position in modem technology should serve to fortify the company's competitive positioning in mobile applications processors (chips that have integrated modems).
  • ….. Qualcomm executives have indicated in the past that the migration to 5G offer the company both an opportunity to sell a richer mix of products as well as to grow its content share within smartphones, which should help Qualcomm boost both its mobile processor average selling prices as well as lead to a solid boost in per-smartphone dollar content.

Though Qualcomm historically hasn't been a top player in the market for RF front-end solutions such as amplifier and antenna modules -- the company has seen some traction in this space lately, landing design wins with the likes of Samsung, Google and Sony. Just as importantly, Qualcomm has argued that 5G gives it an opportunity to take RF share.

Analysts Opinions

Raymond James set a $65.00 price objective on QUALCOMM in a report released on Saturday, February 2nd. The firm currently has a buy rating on the wireless technology company’s stock.

Several equities analysts have recently commented on the company…..

  • Barclays reiterated a “buy” rating and issued a $70.00 price target on shares of QUALCOMM in a research report on Friday, January 18th.
  • UBS Group upped their target price on QUALCOMM from $62.00 to $67.00 and gave the stock a “neutral” rating in a report on Monday, November 5th.
  • Zacks Investment Research cut shares of QUALCOMM from a “buy” rating to a “hold” rating in a report on Tuesday.
  • BidaskClub cut shares of QUALCOMM from a “buy” rating to a “hold” rating in a report on Monday, January 7th.
  • Finally, Cowen restated an “outperform” rating and set a $70.00 price target (down from $73.00) on shares of QUALCOMM in a report on Thursday, January 31st.

Two analysts have rated the stock with a sell rating, eleven have given a hold rating and twelve have assigned a buy rating to the company’s stock. The company currently has a consensus rating of “Hold” and an average target price of $66.00.

Summary

Qualcomm is a leader in 5G technology and is banking on this technology for future growth.

QUALCOMM has a 12 month low of $48.56 and a 12 month high of $76.50. The company has a market capitalization of $62.91 billion, a PE ratio of 16.30, and a PEG ratio of 1.62 and a beta of 1.17. The company has a debt-to-equity ratio of 4.25, a quick ratio of 1.38 and a current ratio of 1.54.