Mike, Re: QCOM and “what is your determination of the stock's fair value?
I use the metrics (EPS, PE, LT growth rate, PEG) most brokerage analysts use as reflected in reports by First Call, Zacks, etc.
Qualcomm Analyst Consensus- First Call 10/30/03 (price $48.02)
...................EPS .............PE.............LT Growth.......PEG
..................Core Ops
2002 FY......$0.98
2003............$1.42.........33.8............15.0%...............2.25
2004............$1.40.........34.3............15.0..................2.30
Comparisons-
Comm Equip...............82.7..............13.9..................6.00
Semi Equip.................75.0...............18.4..................4.07
....TXN........................69.5...............20.0..................3.48
Tech Sector................39.2...............14.0..................2.80
Comments-
1. I believe the analyst community has significantly underestimated Qualcomm’s long term (3-5 years) growth rate at 15%, especially when compared to 20% for Texas Instruments, the comm./semi industries, and the tech sector in general.
Seimens recently stated that in 5 years all wireless phones sold would be 3G. We may have to wait another year before the WCDMA ramp takes off in earnest, but in 2004, Qualcomm will be selling phones in the GSM market for the first time. Strategy Analytics forecasts 492M handset sales in 2003, and 536M in 2004. Some project handset sales of close to 800M in 2008. The following reflects Qualcomm potential handset market growth at 40% CAGR for the next 5 years if sales in 2008 are “only” 565M.
...........Q’s Handset Sales Est at 40% annual increase
2003 .....105M
2004......147
2005......206
2006......288
2007......403
2008.... 565
Even allowing for chipset/ handset ASP declines and chipset market share declines from the Q’s present 90+%, scaling from volume increases and significant new revenue streams in addition to handsets should allow the Q to grow EPS at least 25% per year over the next 5 years.
2. The analyst community also appears to be understating Qualcomm EPS for 2004 at $1.40, less than 2003. Qualcomm has stated that 2004 will be a transition year before the high growth of 3G begins to ramp in late 2004/ early 2005. Even allowing for that, with the developing countries ramping with CDMA (India, China, SE Asia), EV-DO accelerating in Korea/Japan/US, and number portability in the U.S suggesting increased CDMA sales, 2004 should see at least moderate EPS growth.
Factoring the above, Qualcomm appears to me to be significantly undervalued when compared to its peers (comm equip/ semi equip, TXN), the tech sector, and the market in general.
Qualcomm- Adjusted metrics- 10/30/03 (price $48.02)
...................EPS .............PE.............LT Growth.......PEG
..................Core Ops
2002 FY......$0.98
2003............$1.42.........33.8............25.0%...............1.35
2004............$1.60.........30.0............25.0..................1.20
Again, can you put some numbers to your FCF/ Enterprise Value methodology for further analysis and comparison?
I hope this helps- jim |
