(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
Qualcomm Inc.'s (QCOM) stock has risen by 50 percent since the end of April, aided by the company terminating its deal to buy NXP Semiconductors NV (NXPI). Technical analysis suggests the stock can rise another 10% to its all-time highs from around $74.60.
The major driver of the stock is Qualcomm's massive share repurchase program initiated today. The company announced a $16 billion share buyback plan as part of a broader initiative to repurchase up to $30 billion worth of its stock. By reducing the number of shares outstanding, it helps to boost future earnings per share and growth rates even as the company struggles to increase revenue.
The technical chart shows the stock breaking out, rising above a level of technical resistance around $70.50. The breakout follows a more than two-year period of consolidation where the shares traded between approximately $50 and $70. Now the stock is poised to rise back to its all-time high of $82 last seen in 2014. The relative strength index has also started to trend higher, a sign that bullish momentum is moving into the stock.
Qualcomm's stock, nonetheless, may face significant headwinds. Analysts are looking for revenue to fall by more than 3 percent in 2018 to $22.4 billion, and to be flat 2019. The current forecasts are lower than estimates in January, which were $22.7 billion in 2018 and $23.9 billion in 2019. Both years are well below the peak revenue seen in 2014 at $26.5 billion.
Where's The Growth?
That weak revenue growth, not surprisingly, is hurting earnings this year. They are forecast to fall by 15 percent in 2018 to $3.63 per share. Earnings growth is forecast to improve in 2019 by rising 23.6 percent. But the 2019 gains will only recoup past profit declines, and are less impressive considering that earnings in 2017 were $4.28 per share.
The short-term outlook for Qualcomm looks bullish based on the technical charts. And the significant buybacks will make Qualcomm's profit growth outlook appear stronger than prior forecasts. But Qualcomm needs to post stronger, more consistent revenue and earnings growth to boost its stock longterm.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.