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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Rocket Scientist who wrote (116166)	3/28/2002 4:14:22 PM
From: rkral	Read Replies (1) \| Respond to of 152472

.... earnings of $27.50. Does that agree with your model? RS, been following your and MM NPV calculations. In Excel, I come up with $26.61 versus your $27.50. So I believe our models are identical except .. you appear to be including the initial $0.90 .. which is incorrect imho. For MM's other two scenarios, I get $39.94 (15%, 5%) and $23.51 (15%, 9%). Considering all the assumptions, calculating to the penny is normally ridiculous .. but useful here to determine model equivalency. Ron

To: Rocket Scientist who wrote (116166)	3/28/2002 4:47:52 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

I get an NPV of Case 1 (13% discount rate, eps growth 30%X5yrs+15%X5yrs+6%X20yrs) earnings of $27.50. Does that agree with your model? i get the same, except i would back out the initial 90 as rkral suggests. 3% dilution may be right for years when the stock price appreciates, but for the 20 years when the assumed earnings model suggests slow growth, it's an unreasonable assumption well, QCOM has been growing its share base these last few years in spite of a lack of earnings per share growth. and more generally, tech companies continue to dilute their share bases via options issuance even as their growth slows. MSFT, e.g., spends some $6BILLION a year on share buybacks and yet its share base is still expanding, even though the company is no longer growing rapidly. even if options issuance were reduced as cash flow improves, if one assumes that options are a form of compensation, then a reduction in options would be offset by higher cash compensation, and thus accordingly lower earnings. so we could reduce the options issuance and also reduce earnings, or leave earnings as is (a very generous figure indeed) and assume options issuance will continue. my opinion is to take this latter approach. IMO, a discount rate of 13% is too high compared to the "risk free" return available from treasuries and the current inflation rate. please note that any discount rate can be applied. however, an important point imho is that the expected return from the NPV price is equal to the discount rate. since some people invest in a stock like QCOM because they think they will "beat the market", one might ask what a market-beating return is. i proffer the 13% figure as one that is 200 basis points higher than the SPX's long-term return of 11%, and is thus "market-beating". so according to this model, if the stock were at the NPV price for a 13% discount rate and all the other conditions held true, then the expected return would be 13%. now one may certainly make the argument that one is not looking to beat the market by investing in QCOM (and certainly QCOM has not beaten it lately, though this says nothing about the future). let's say one is satisfied with a 9% return. plugging that into our equation, i get a calculated NPV of 41.61 (again, backing out the current year). in this case, i need to assume QCOM has incredible earnings growth over the next decade (i venture to guess this would be the very best growth over the next decade among cos w/750MM in starting earnings) simply to reach a 9% expected return based on a NPV of 41.61. Finally, there has to be a terminal multiplier applied to the last year's EPS to account for the (assumed) fact that the company is an ongoing business you will need to explain this terminal multiplier thing to me a bit more and what you mean by it for QCOM's case. this is not real estate we're talking about. we are looking at the net present value of an assessable earnings stream range. whatever the company is worth beyond 30 years is very hard to know, and in any case, it needs to be discounted to today's dollars. if QCOM is a going concern in 100 years, i wouldn't be suprised if they'll be making a lot of money, but i wouldn't include that in my calculation of today's value. Making the corrections above and using a terminal multiplier of 20 i guess "terminal multiplier" is a way to turn 27.50 into 83. that's pretty cool, but i wouldn't invest based on it without a very thorough explanation of what's happening. and lastly i would point out again that these numbers all assume every last cent of pro forma earnings is good-as-cash free cash flow. in fact i consider this to be rather too naive (and a look at QCOM's retained lifetime earnings bolsters my confidence in this respect). rather, i would personally only consider about 50-70% of proforma to be equal to "take-home earnings". that is just my opinion, of course, but it has an effect on my ultimate valuation. all JMHO and i could be completely wrong.

To: Rocket Scientist who wrote (116166)	3/29/2002 12:27:10 AM
From: Maurice Winn	Respond to of 152472

<Sure, neither QCOM nor any other company can forever grow substantially faster than the overall economy,> Certainly that's true until now [and probably for a decade or so to come]. But when transactions are freed from states and cyberspace looms large, there doesn't seem to me to be any upper limit. A company could grow very large, very fast - until all the world's economy is transacted by It. All countries are subsumed by It. All humans and animals and most other stuff is determined by It. Okay, that's somewhat speculative, but it's an Existential Day today, Good Friday. Time to think about such things. Leaping out of the black hole, Mqurice PS: Edit... whoa, I just noticed, your post is number 116166. 111, 666 ... mark of the beast and all that...