| | No problem. One at a time.
Firstly, on free cash flow. Don't know about your definition, but the definition of FCF is: Earnings + Depreciation & Amortization - Cap Ex
This formula is recognizing GAAP earnings as the proxy for profit and calculating in-period capex expense rather than prior-period capex. Thus factoring out the depreciation deduction from earnings and factoring in the raw capex. A "current accounting" if you will.
Anyway, just to source my data, from the 10-Q statement of cash flows directly:
Net income (loss) $ 139,233
Depreciation and amortization 83,647
Capital expenditures (33,476)
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Free Cash Flow: 189,404
No offense, but press releases are designed to be truthful and "best foot forward" (e.g. misleading) simultaneously.
The rest of the math follows rather relentlessly to $1/sh (thereabouts).
Second, there's no connection with the "fill the gap" TA talk and the fundamental valuation. I will be less oblique in making the point however. If the stock price was $20 then the FCF yield of 5% would be close to a T-Bill, except that Qualcomm carries execution risk/reward and the T-Bill carries none. Thus I was merely indicating that both TA and FA are pointing in the same direction. Which is generally a very strong hint. If not of the end point then at least of the direction.
Third, you mentioned profit. Again, I was only making passing reference to quantify risk. Net of all sources and sinks of cash, the company has not managed to accumulate more than 385 M$ in its entire lifetime of operations. And is sitting with 135 M$ unrealized loss not yet factored into this. This is merely a matter of historical fact.
I agree with you that there is tremendous potential in the likes of LEAP and Pegaso and so on. And I understand the merits from the point of view of business strategy.
But again, I point myself as an investor back to business sense from a dollars and cents perspective. And there is no certainty of a return. In the past the same kind of hope was held out for Globalstar and so on, which hope has not panned out.
Past is no guarantee of the future. But it should not be dismissed summarily either. Factored in to some degree. In valuation of companies we are certain to be surprised because our view of the future is dim at best. I personally prefer to base my evaluation of "fair" with some room for surprises of the nice kind and some of the bad kind. As opposed to only leaving room for those of the bad kind or only the good kind.
Merely by accepting that 100% of earnings will be retained in modelling a yield we have already given the business more credit than its past has demonstrated. Good-kind surprises will come my way if they deserve more than this or the market suddenly brightens. Bad kind if they keep doing what they have been doing or 3G is further slowed.
Sounds like a good balance.
So to summarize. It looks expensive on a relative Price:FCF basis, where a $20 target seems to fairly capture some risk/reward potential and in line with TA.
All in all it's not yet a "value" play. And particularly not when trading at a high multiple of earnings while its customers are having their tender bits tenderized.
Of course, this is all conjecture. We can't see the future and my SWAG is that we see a relief rally soon.
John
P.S. Detailed analysis notwithstanding, if the market can take a stock with a "fair" price of $20 to $200 & back... well it pretty well doesn't matter what you or I think "fair" is. It's going to be what it will be. We can only decide what *we* would call fair and then take our chances from there. |
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