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Is Qualcomm Ready to Make a Comeback?

April 19, 2017

Thus far, 2017 has been a rough year for QUACOMM Inc. (QCOM). The chipmaker is currently embroiled in a billion-dollar lawsuit with Apple, and that has weighed on shares. However, as I write this, QCOM shares are rallying on its fiscal second-quarter report. Could this be what the company needs to make a comeback? Let's find out.

First, let's see what the big deal is with Qualcomm. This is a Fortune 500 company that designs and develops mobile telecommunications products and services. The company is a global leader in providing integrated circuits, or chipsets, to advanced 3G mobile device manufacturers. QCOM's Snapdragon 800 processors also powered the first LTE-advanced smartphone, the Samsung Galaxy S4 LTE-A, back in 2013.

A few months ago, the chipmaker caught my eye when it pulled back on news that Apple filed a lawsuit against it. Apple's complaint is that Qualcomm, which supplies chips for the iPhone, is taking advantage of its monopoly to withhold $1 billion in rebate payments to Apple.

Investors had a kneejerk reaction to the news. In my opinion, this is a buying opportunity. With this lawsuit, Apple is attempting to challenge Qualcomm's monopoly in emerging markets, plain and simple. Even if Apple is successful, Qualcomm will remain the dominant player in 4G and 5G technologies.

Case in point: Qualcomm's second-quarter report. Compared with the year ago quarter, adjusted revenues rose 8% to $6.0 billion. Over the same period, adjusted earnings rose 28% to $2.0 billion, or $1.34 per share. The analyst community was expecting earnings of $1.19 per share on $5.90 billion in sales, so QCOM posted a 12.6% earnings surprise and a 1.7% sales surprise.

Better yet, QUALCOMM's management expects to keep up the momentum. Looking ahead to the third quarter, the company is targeting earnings between $0.90 and $1.15 per share on between $5.3 billion and $6.1 billion in revenue. This is in line with the Street view of $1.10 EPS on $5.95 billion in revenue. QCOM shares rose following the announcement.

At its core, QCOM is a solid dividend stock. In the past 13 years, QCOM has increased its quarterly dividend by an incredible 2,020%. The company paid just $0.025 per share back in 2003; last quarter, it paid $0.53 per share. The stock has a current dividend yield of 3.0%. For this reason, I give QCOM a B-rating in Dividend Grader.

Currently, the stock isn't up to snuff in Portfolio Grader, but my hope is that the stock will be upgraded following this earnings announcement. In the meantime, I recommend QCOM in my Dividend Growth and Family Trust services due to its solid dividend.

Sincerely,

Louis Navellier

Louis Navellier

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