Analysts' Warnings Send Qualcomm Into a Spin: Call of the Day
New York, June 15 (Bloomberg) -- By cutting earnings estimates for Qualcomm Inc. and raising new concerns about revenue, analysts triggered a two-day dive that lopped 25 percent off the company's stock price and $15 billion from its market value.
Neither Edward Snyder at Chase H&Q, who released his research note this morning, nor Wojtek Uzdelewicz at Bear, Stearns & Co., who made comments yesterday, actually cut his rating on the company. Citing a slowdown in sales of cellular phones that use Qualcomm technology in Korea, each analyst reduced earnings projections for this year and next.
That was enough. While Qualcomm rose 27-fold last year, making it the best-performing stock in the Standard & Poor's 500 Index, it has fallen 66 percent since its peak Jan. 3.
Like other stocks with high prices relative to earnings, the shares fell with the Nasdaq Composite Index in March and April. Qualcomm dropped further in May on concern its technology won't be deployed in China.
``It's a high-PE stock in a very touchy market,'' said Bob Streed, manager of the $500 million Northern Select Equity Fund. ``As a portfolio manager, the best decision you can make when you hear a company is having a problem is to sell it.''
Streed said his smart decision was to sell his entire holding of Qualcomm stock in January, as he began to hear bad news about the company. Qualcomm was as much as 2.7 percent of his fund last year.
Lowest Since November
Qualcomm fell 9 1/16 today to 61 7/16, following a drop of 10 7/8 yesterday. The stock is at its lowest point since November.
Snyder, who began coverage of Qualcomm last June and has had a ``market perform'' rating on the company since, cut his earnings estimate for the fiscal year ending in September to $1.07 a share from $1.11. He cut his fiscal year 2001 outlook to $1.27 from $1.49.
Snyder also said he expects the stock to fall to 50 over the next 12 months. He didn't previously have a price target.
Uzdelewicz cut his projection by 3 cents in the current year, to $1.05 a share, and by a dime for fiscal year 2001. The mean estimate for 2000 is $1.08 a share among analysts polled by Fist Call/Thomson Financial.
Snyder's rating of Qualcomm puts him in a small minority. Of the 22 analysts who follow the stock, 18 rate it ``buy'' or ``strong buy,'' while only three others have a ``neutral'' rating like Snyder's. Uzdelewicz rates Qualcomm ``attractive.''
``The shoe finally dropped,'' said Snyder, referring to Qualcomm's failure to complete an agreement for China Unicom to use its technology. ``We've maintained all along'' that Qualcomm's technology wasn't going to be adopted in China.
``Korea was a surprise,'' he said. Late last month the Korean government ruled that companies cannot subsidize the cost of a cellular phone, a decision that will boost phone prices there by about $176 and slow sales.
A Qualcomm Bull
Though they didn't hold sway yesterday and today, Qualcomm still has its defenders.
``The world is going to be converting to CDMA technology, and Qualcomm is going to be paid for it,'' said analyst Walter Piecyk of PaineWebber Inc., who began coverage of the company in December with a ``buy'' rating less than a week before the stock peaked.
Piecyk said in December the stock would reach 250 in a year and has kept that target ever since. In an interview today, he defended the target, saying it primarily reflects the potential income from licensing the company's technology when the next generation of cellular systems gets built. He conceded that this won't affect the company's bottom line for at least three years.
Snyder said he was surprised last fall to see not just investors but also fellow analysts, including Piecyk, being so bullish on Qualcomm. ``I was kind of astounded that it ran so far.''
On the other hand, Snyder said he understands analysts want to have a ``buy'' rating or better on a skyrocketing stock.
``To be frank, my call was wrong last year,'' as the stock climbed from June through December, he said. ``It was dead on right from the fundamental point of view. But it was dead on wrong from the price point of view.' |
