CIF Stock Recommendation Report (Fall 2012)

Transcription

1 Section (A) Summary Date: 12/6/2012 Analyst Name: Jacob Allen CIF Stock Recommendation Report (Fall 2012) Company Name and Ticker: Qualcomm Inc. (QCOM) Recommendation Buy: Yes No Target Price: $67.00 Sector: Technology Industry: Semiconductors Market Cap (in Billions): $ Stop-Loss Price: $57.50 # of Shrs. O/S (in Millions): 1,704 Current Price: $ WK Hi: $ WK Low: $51.76 EBO Valuation: $53.07 Morningstar (MS) Fair Value Est.: $70.00 MS FV Uncertainty: Medium MS Consider Buying: $49.00 MS Consider Selling: $94.50 EPS (TTM): 3.06 EPS (FY1): 4.30 EPS (FY2): 4.74 MS Star Rating: 4 Next Fiscal Yr. End Year : 2013 Last Fiscal Qtr. End: Less Than 8 WK: If Less Than 8 WK, next Earnings Ann. Date: Analyst Consensus Recommendation: Month : September Y N 1/30/2013 Outperform/Buy Forward P/E: Mean LT Growth: 14.28% PEG: 0.94 Beta: 0.99 % Inst. Ownership: 81.56% Inst. Ownership- Net Buy: Y N Short Interest Ratio: 1.40 Short as % of Float: 1.20% Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM)

2 Investment Thesis: Qualcomm is a very strong company. With great financials, management, and growth potential it would appear to be a good stock. Its beta is 0.99 meaning it is not extremely volatile. Also, a PEG of 0.94 suggests that the stock is undervalued compared to its future earnings growth. Their profit margin, ROA, and ROE is much higher than industry and sector averages showing an effective management. In the past three years revenues have increased over $8 Billion and the trend is predicted to continue into The same is true for Earnings Per Share. Analysts agree with these statements and rate the buy or sell of Qualcomm at a bullish 1.85 mean. Outside of the number, there is a huge potential for growth in the industry. Mobile devices, such as cell phones and tablets, are becoming more popular by the day and are highly sought after commodities. Qualcomm produces the processing chip for these types of devices as well as the chip used in Apple s iphone. With mobile devices expanding their growth outside of the U.S., such as in China, there is an even greater market for Qualcomm to capture. Overall, I believe that Qualcomm is a great stock for the CIF with large room for growth in revenue and EPS in Summary Provide brief summary of your analysis in each section that follows Company Profile: Qualcomm is a world-leading provider of wireless technology and services. It s a leading innovator of process chips in the world of smart phones and tablets. Fundamental Valuation: The fundamental valuation is below the current price of QCOM. This is because this only uses numbers and does not consider the macroeconomic future of the company. Relative Valuation: The relative valuation shows that the P/E and PEG ratios are very relevant to the Qualcomm. The PEG is very low which indicates an undervalued stock compared to future earnings. Revenue and Earnings Estimates: Revenue and Earnings estimates have all been increasing in recent months showing bullish tendencies of analysts. Analyst Recommendations: Analysts agree that Qualcomm will Outperform and to Buy. The mean was bullish at Only 2 analysts recommended selling with over 40 suggesting outperformance and buy. Institutional Ownership: With 81.58% institutional ownership and positive 177 net buyers it is clear that the markets believe in Qualcomm s potential positive growth and performance. Short Interest: Qualcomm has a goon short interest ratio of When compared to its competitors it is better than average. Intel had a short ratio over 4 showing that investors have a more positive outlook on Qualcomm and it is not just that the industry naturally has a short interest ratio. Stock Price Chart: The price chats are very good. Over five years Qualcomm has grown over 60%. Over one year it grew almost 20%. Over three months Qualcomm has had positive growth where the XLK and S&P 500 did not. These numbers are higher than the S&P 500, XLK, and its two main competitors Broadcom and Intel. 2

3 Section (B) Company Profile (two pages maximum) Company Summary Qualcomm is a world-leader in wireless technology and services. They are a global company with multiple business divisions. Their business divisions include: QCT and Semiconductor Operations, Qualcomm Government Technologies, Qualcomm Internet Services and Qualcomm Ventures. QCT and Semiconductor Operations is a world leader in smart mobile technologies, including smart phones and tablets with offerings that support both 3G and 4G wireless networks. Government Technologies focuses on wireless technology with a mission of improving government communication and efficiency. Internet Services focuses on developing new technologies that allow their customers to deliver a total mobile consumer experience rather than an only voice and data experience. Qualcomm Ventures is the segment of Qualcomm that focuses on making strategic investments in early-stage high-technology ventures. The company operates solely in the semiconductor industry. All of Qualcomm s business units revolve around the semiconductors that are produced by Qualcomm. The difference between the business units is how the semiconductor is used within the industry; such as for government use or private usage such as providing a product for Apple. Business Model, Competition, Environment and Strategy The company s main competitors are Broadcom Corp., Nokia Corp., and Texas Instruments Inc. Qualcomm differentiates itself from these competitors by being a leader in innovation and R&D. They continuously create new products that redefine the market. They also produce these products quickly and efficiently, sometimes faster than their consumer expects. They saw the potential of the mobile device and started making technology that was able to help the mobile device industry take off ( Currently Qualcomm is currently in the middle of a growth stage. With the mobile device and tablet industry growing by the day they are in a position to ride the movement to the top. The semiconductors ( chips ) they make are the highest quality in the industry and are the centerpiece to the productivity of mobile devices and tablets. Also, they have had a strong partnership with Apple in recent years and this will continue with Apple purchasing their chips to put in Apple products ( Qualcomm s business is not cyclical or seasonal. The current environment for Qualcomm is promising. Qualcomm expects a great 2013 with its products being used so much by the growing smart phone and tablet industry (ww.forbes.com). 3

4 Revenue and Earnings History REVENUE Periods December March June September Note: Units in Millions of U.S. Dollars EARNINGS PER SHARE Periods December March June September Note: Units in U.S. Dollars Annual Revenue: *Units in Millions of U.S. Dollars 2012: $19, : $14, : $10,985 Annual Earnings Per Share: 2012: $ : $ : $2.04 4

5 Discuss any pattern in revenue and earnings (e.g., increasing year over year; seasonal; etc.) The pattern of revenue and EPS growth is impressive. From 2010 to 2012 their income grew over $8 billion from $10.9 billion to $19.1 billion. During that same time period EPS grew from $2.04 to $3.06. There is not a specific pattern of higher revenues during a specific quarter. This is because Qualcomm is in the technology sector and is not cyclical or seasonal. 5

6 Section (C) Fundamental Valuation (EBO) Include the following here: QCOM PARAMETERS FY1 FY2 Ltg EPS Fore casts % Mode l 1: 12-ye ar fore casting horiz on (T=12). Book value /share (last fye ) and a 7-ye ar growth pe riod. Discount Rate 8.60% Divide nd Payout Ratio (POR 30.23% Please download and save this template to your own storage device Ne xt Fsc Ye ar e nd 2013 You only ne e d to input value s to ce lls highlighte d in "ye llow" Curre nt Fsc Mth (1 to 12) 3 The re st of the spre adshe e t is calculate d automatically Targe t ROE (industry avg.) 8.88% Ple ase re ad "Guide line s_for_fundame ntalvaluation_profle e _Spre adshe e t" file care fully Ye ar Long-term EPS Growth Rate (Ltg) Forecasted EPS Beg. of year BV/Shr Implied ROE ROE (Beg. ROE, from EPS forecasts) Abnormal ROE (ROE-k) growth rate for B (1-POR)*(ROEt-1) Compounded growth growth*aroe required rate (k) Compound discount rate div. payout rate (k) Add to P/B PV(growth*AROE) Cum P/B Add: Perpetuity beyond current yr (Assume this yr's AROE forever) Total P/B (P/B if we stop est. this period) Implie d price Che ck: Beg. BV/Shr Implied EPS Implied EPS growth Inputs (provide below input values used in your analysis) EPS forecasts (FY1 & FY2): $4.30 & $4.74 Long-term growth rate: 14.28% Book value /share (along with book value and number of shares outstanding): Book value: $33,523 # of shares outstanding: 1,704 Million Book value / share: $19.67 Dividend payout ratio: 30.23% Next fiscal year end: September 2013 Current fiscal month: 3 Target ROE: 8.88% Output 6

7 Above normal growth period chosen: 2 years EBO valuation (Implied price from the spreadsheet): $53.07 Sensitivity Analysis EBO valuation would be (you can include more than one scenario in each of the following): $65.55 if changing above normal growth period to 5 years $54.45 if changing growth rate from mean (consensus) to the highest estimate 20.0% $52.01 if changing growth rate from mean (consensus) to the lowest estimate 7.70% $65.63 if changing discount rate to 7%_ $53.07 if changing target ROE to 11% 7

8 Section (D) Relative Valuation Copy/paste your completed relative valuation spreadsheet here Cougar Investment Fund Relative Valuation Template Please download and save this template to your own storage device You only need to input values to cells highlighted in "yellow" The rest of the spreadsheet is calculated automatically Please read "Stock Recommendation Guidelines" document carefully KFT Mean FY2 Earnings Estimate Forward Mean LT PEG P/B ROE Value P/S P/CF Ticker Name Mkt Cap Current Price (next fiscal year) P/E Growth Rate (MRQ) 5 yr ave Ratio TTM TTM 1 TXN Texas Instruments $ 33, $ $ % % BRCM Braodcom Corporation $ 25, $ $ % % MSI Motorola Solutions Inc $ 17, $ $ % % INTC Intel Corporation $ 10, $ $ % % QCOM Qualcomm $ 107, $ $ % % Implied Price based on: P/E PEG P/B Value P/S P/CF 1 TXN Texas Instruments $76.75 $ $ $ $28.15 $ BRCM Braodcom Corporation $52.92 $54.25 $ $ $23.98 $ MSI Motorola Solutions Inc $82.80 $ $77.65 $89.33 $20.04 $ INTC Intel Corporation $47.57 $64.02 $39.12 $33.96 $20.38 $18.65 High $82.80 $ $ $ $28.15 $57.50 Low $47.57 $54.25 $39.12 $33.96 $20.04 $18.65 Median $64.84 $86.81 $ $ $22.18 $46.83 From the top panel The multiples compared to Qualcomm and its competitors are more similar than different. Their long-term growth rates are all very similar as well as their forward P/E. Qualcomm has the second lowest PEG and there are large differences between the highest and lowest. The P/B ranges from with Qualcomm being at The P/CF for all the firms is very close except for Intel Corp. whose P/CF is much lower than the others. The most notable ratio is the PEG of Qualcomm being very low. This is good because it shows that the stock could be undervalued. It also shows that the Qualcomm s stock price is low compared to the anticipated earnings of the company. From the bottom panel The closest comparable would be Broadcom Corporation. The P/E and PEG are similar to similar to Qualcomm s. I believe this is because Broadcom Corporation is one of the most direct competitors to Qualcomm in the entire industry. Also the P/E and PEG are two of the most relevant ratios when looking at the value of Qualcomm. This is because they show how the 8

9 market values the company. Both ratios are low which indicates that they Qualcomm, and possible Broadcom are undervalued. 9

10 Section (E) Revenue and Earnings Estimates HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Sep-12 4, , Quarter Ending Jun-12 4, , Quarter Ending Mar-12 4, , Quarter Ending Dec-11 4, , Quarter Ending Sep-11 3, , Earnings (per share) Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Quarter Ending Sep Qualcomm has a history of surprising the market in a positive way. Revenues and EPS have been growing and have been higher than estimates a majority of the time. Over the past two years the Qualcomm has had mostly positive surprises. Only once did they have a negative surprise. The most notable surprises come in the EPS. The biggest surprise was during the quarter ending September 12 with a 9.10% surprise. When the surprises happened the stock price increased that day. 10

11 CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Dec , , , , Quarter Ending Mar , , , , Year Ending Sep , , , Year Ending Sep , , , , Year Ending Sep , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Year Ending Sep Year Ending Sep Year Ending Sep LT Growth Rate (%) The range that the analysts estimated was around $1 billion to $2 billion from the highest to the lowest. The biggest changes came from the estimates one year ago compared to what they are now. The difference between the highest estimate and mean was 1.35%. The difference between the mean and the lowest estimate was -1.15%. The biggest difference in high and low estimates comes from the revenue of FY2. The high is $27,740 million and the low is $6,286 million. There were 12 analysts who provided LT growth estimates. This is roughly a 1/3 of the analysts who provided estimates on revenue and EPS. 11

12 CONSENSUS ESTIMATES TREND Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Current 1 Week Ago 1 Month Ago 2 Month Ago 1 Year Ago SALES (in millions) Quarter Ending Dec-12 5, , , , , Quarter Ending Mar-13 5, , , , , Year Ending Sep-12 18, Year Ending Sep-13 23, , , , , Year Ending Sep-14 25, , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Quarter Ending Sep Quarter Ending Sep Quarter Ending Sep The trend of the analysts is an increase in sales as well as earnings. In every instance the estimation increased from 1 year, 2 months, 1 month, and 1 week ago. The trend is equal for the near and out quarter, FY1 and FY2, and revenue and earnings. In all instances estimates have risen. 12

13 ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Dec Quarter Ending Mar Year Ending Sep Year Ending Sep Year Ending Sep Earnings Quarter Ending Dec Quarter Ending Mar Year Ending Sep Year Ending Sep Year Ending Sep A huge majority of analysts provided an up revision. Only four analysts total reduced their estimates compared to 39 who increased. However, one noticeable difference is that in the past four weeks there have been no decreased estimates in revenue but four in earnings. I think that the company has a very good chance of beating the estimates. In the 4 th quarter of 2012 they reported increased revenue of 18% for the year and increased net income of 20% ( They project more growth in the next fiscal year (2013) and I 13

14 believe that they will accomplish this prediction. The market has already taken the positive earnings report into consideration in its current stock price but I do not believe that the market has not fully taken the potential growth of the company into consideration. The reason I believe this is because of the upcoming fiscal cliff. The market is very worried about this at the moment and are not valuing any company too high in case the market were to crash again. 14

15 Section (F) Analysts Recommendations Copy/paste the Analyst Recommendations and Revisions Table from Reuters.com, Analysts tab. NOTE: Make sure you copy the entire table including the Mean Rating at the bottom of the table. ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating Over the last three months the recommendations have been consistent. A majority of the analysts say outperform or sell, with a mean rating of This is a very bullish rating. Only 2 analysts said sell during the past three months compared to 24 saying outperform and 17 saying buy. These recommendations are similar to what I have researched online as well as with Morningstar. 15

16 Section (G) Institutional Ownership Cougar Investment Fund Institutional Ownership Template Please download and save this template to your own storage device You only ne e d to input value s to ce lls highlighte d in "ye llow" The re st of the spre adshe e t is calculate d automatically Ple ase re ad "Stock Re comme ndation Guide line s" docume nt care fully QCOM Ownership Activity # of Holders % Beg. Holders Shares % Shares Shares Outstanding 1,704,026, % # of Holders/Tot Shares Held 1, % 1,390,144, % # New Positions % # Closed Positions % # Increased Positions % # Decreased Positions % Beg. Total Inst. Positions 1, % 1,391,154, % # Net Buyers/3 Mo. Net Chg % -1,009, % Ownership Information % Outstanding Top 10 Institutions % Ownership 25.00% Mutual Fund % Ownership 1.32% Float % 98.29% > 5% Ownership Holder Name % Outstanding Report Date NO SHAREHOLDERS > 5% 16

17 Institutions on a net basis have been increasing. There was an increase in 828 positions resulting in a net increase of 177 positions when taking the decreased positions into account. With 81% institutional ownership, and 10% top-10 ownership, the company seems to look very promising in the eyes of investing firms. There are no shareholders who have a stake greater than 5%. This indicates that not one investor will try and control what the company does. This is a bullish indicator because the management of Qualcomm is very good at what they do, according to the Morningstar Analyst Report. 17

18 Section (H) Short Interest (two pages) From (NASDAQ s website) 18

19 Settlement Date: 11/15/2012 Short Interest: 20,245,599 Average Daily Shares Volume: 14,447,084 # of Days to cover: 1.40 From Complete the following table with information from the share statistics table. Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 11,647,100 10,564, Billion 1.68 Billion Shares Short Short Ratio Short % of Float Shares Short (Most recent date) (Most recent date) (Most recent date) (2 weeks prior) Million % Million The market sentiment has remained relatively the same over the last year. In December of 2011 the short ratio was 1.39 and in November of 2012 the short interest is 1.4. However, in the past three months (Sept. Nov.) the market has become more bullish towards Qualcomm. On August 31 the short ratio was 2.25 and as of November 15 it was down to 1.4. This is because of Qualcomm s recent performance. Qualcomm performed very well over recent months and this is the cause for the more bullish tendencies of analysts in recent months. 19

20 Section (I) Stock Charts A three months price chart A one year price chart 20

21 A five year price chart The price charts show a clear trend of positive growth. From five years until now Qualcomm has been similar to the Technology (XLK) sector. A recent difference from the XLK is in the past three months were Qualcomm has grown at a higher percentage. Compared to the S&P 500 Qualcomm has performed much better over time. In comparison to Qualcomm s competitors, Broadcom and Intel, Qualcomm has performed better than both. Qualcomm has performed much better than Intel in the past five years. Broadcom has performed well over the past five years, but not to the standards of Qualcomm. In the past three months Qualcomm has outperformed the S&P, the XLK, and both competitors. 21

22 SOURCES