John, thanks for your thoughts. You wrote-
1. “What's the last number in that series, about 2 Billion handsets per year?”
John, I was using the 50% handset growth figure in your model which you discussed in your post of 12/6. The last number in the series was 2.2 B which may not be out of line as industry consultants are predicting 2B subscribers by 2006 (4 years). There could possibly be over 3B subscribers by 2012. Many folks could have several wireless devices (phone, PDA, laptop, car- telematics, wrist device for locating kids/ elderly, etc.) And, don’t forget that these devices are consumables to a certain extent as most are replaced within two years.
2. “ And then there's this mysterious PEG. Why did you choose 1.8? Even during the bubble PEG of 1 was used to justify overinflated prices”
John, again, you’ve got to start reading for comprehension. I discussed the basis for the 1.8 PEG in my reply to you of 11/28. “Value Line shows the DJIA companies for the last 10 years (ending 2000) with a average PE of 17.4 and earnings growth rate of 9.7% which yields a PEG of 1.8” For the past 20 years (PE 13.4, earnings growth 7.3%, PEG 1.83). For the past 50 years (PE 12.7, earnings growth 5.7%, PEG 2.2). I read a recent article in which a University was comparing their 2002 investment portfolio to the S&P500 and stated their PEG was less than the S&P500 which stood at 1.7 at the time. A Smith Barney study reflects a PEG of 1.8 for a company with an earnings growth rate of 35% with long term interest rates at 5.5%
So, I really don’t know what your basis is for saying- “Even during the bubble PEG of 1 was used to justify overinflated prices”
3. “Why did you pick a long-term growth rate of 35% in 2007?”
I used the average (40+%) handset growth for the four years (3-5 year long term growth rate) beginning in 2007 and discounted the EPS growth to 35%.
4. Currently the stock is trading at around 40x "earnings".
Qualcomm closed at $41.22 on Friday, with 2003 company guidance at $1.175 (conservative) yielding a PE of 35, not “40” as you state. With Qualcomm significantly raising chipset sales guidance last week for this and the following quarter, I would imagine 2003 EPS guidance will be increased proportionately in January. “Analysts" are projecting a long term (3-5 yr) growth rate of about 22 last time I looked, yielding a PEG of 1.6 which is probably appropriate for today’s market. However, in this market “analysts” are being very conservative in setting targets and long term growth rates.
Jim |
