MM--I agree, the Pegaso figure is excluded from pro forma earnings. So where does it get INCLUDED when QCOM is able to reinstate the $600 million of Pegaso assets?
The risk of improving earnings in a stock like QCOM is considered by most analysts to be substantial--so high, apparently, that they would prefer the safety of Treasuries. I look at risk a little differently. I try to calculate an expected value of earnings, which is the estimated earnings multiplied by the probability of achieving those earnings.
Thus, if earnings growth is projected at, say, 70 percent annually, I would attach a probability of about 10 percent, giving an expected value of earnings growth of merely 7 percent. If I use the more conservative 25 percent earnings growth estimate, however, I would attach a probability of about 80 percent, giving an expected value of the growth rate of 20 percent. That's not unreasonable if you factor in royalties, chip sales, OmniTRACS, and software, particularly BREW related. I can't predict how the average investor would consider the alternative of 20 percent earnings growth, compared with 5 or 6 percent from Treasuries, but I sure do know which alternative I'd prefer.
Art |
