(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
Shares of Qualcomm Inc. (QCOM) have had a terrible start to 2018, falling over 9%. But the outlook for the company may get worse as analysts cut their forecasts. Already, a technical analysis shows the shares may fall as much as 15% in the coming weeks.
Analysts have been slashing their estimates and price targets for the company over the past few months and now see the company's earnings dropping by more than 23% in 2018, with revenue forecast to fall by some 5.5%. Adding to the negative outlook for the company is the continuing uncertainty around the final fate its proposed acquisition of NXP Semiconductor N.V. (NXPI) (See also: NXP Stock Seen Falling Amid Qualcomm Deal Concern.)
The technical chart suggests that shares of Qualcomm may be poised to fall by 14.5% to $49.90, its next level of technical support. The stock’s recent rise filled a technical gap at $62.25, and now the stock appears to be returning to its previous lower trend. Additionally, the relative strength index (RSI) is now trending lower after hitting an overbought level at 70.
Analysts have been slashing their outlook for the coming quarter. Over the past month, earnings views for the fiscal third quarter of 2018 have been cut by nearly 10%. The company is now expected to see its earnings decline by almost 15% versus a year ago to just $0.71 per share. Meanwhile, the outlook for revenue isn't healthy either, with those estimates being cut nearly 1.6% over the past month and seen falling by 1.4% versus a year ago to $5.2 billion.
QCOM EPS Estimates for Current Fiscal Year data by YCharts
The full-year outlook is even worse: Qualcomm's 2018 earnings numbers have been slashed by nearly 5%, and are expected to drop by over 23% to just $3.29 per share. Meanwhile, revenue estimates have been cut almost 1% over the past month and are seen dropping 5.5% on the year to $21.97 billion. One would have to go back to 2012 to find a lower annual revenue total for the company in recent years.
QCOM Annual Revenue Estimates data by YCharts
The weak outlook is causing analysts to continue to reduce their price target on the stock with an average price target of just $62.74. That target has dropped materially since the middle of March, falling by nearly 13% from $72.03.
With expectations for the company continuing to deteriorate, it is no wonder why the technical chart looks so poor.
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.