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

To: quartersawyer who wrote (123853)	9/8/2002 3:32:23 PM
From: Wyätt Gwyön	Respond to of 152472

the basic argument i would make is that trend earnings are not that different from the market, especially over long periods of time. notice that QCOM's earnings have been flat for several years, even though it is supposedly a growth stock. as soon as you add in the flat years, it really lowers the long-term geometric growth rate. e.g., if a stock has 36% earnings growth in year 1, and 0% growth in years 2-4, then the annualized growth for the 4 yrs is only around 8%. the bullish argument on QCOM, which is that CDMA uptake will create this magical nirvana of super-high earnings for years and years to come, i find hard to believe. the results of the past few years do not indicate anything but a flatline, which is on par with the wireless industry. the main hope is that CDMA market share will expand at well beyond the pace of the wireless market in general. but this is exactly the argument the bulls have used the past several years...to their own detriment. however, i can, for the sake of argument, assume many of the same bullish assumptions as my more bullish threadmates, and still come out with rather sobering estimates. i think the more likely scenario will be a few growth spurts as different markets experience uptake, followed by flat periods. when they average out over a long time period--like two decades going forward--i doubt there will be a huge difference between QCOM's earnings growth and the market's. however, perhaps one could argue that QCOM's "baseline" should be higher than the current years 90-something pennies. perhaps a normalized "baseline" or "starting point" is in the neighborhood of $1.30 or whatever. but my point is, the bulls can pick a different starting point (different from the current reality, that is) if they like, but i would argue that whatever starting point one chooses, QCOM's geometric earnings growth from that point, over a long period of time like two decades, will be pretty close to the market's earnings growth. let's say we assume QCOM's normalized earnings is, say $2 a share. i think even most bulls would be happy with this. if a broader CDMA uptake works out to this level, and QCOM's 90-someodd cents of earnings these past few years are understated, then we could say QCOM has a normalized PE of a little over 14, or the historical market average. at that point, i would expect QCOM to have a forward real return of around 7%, or the historical market average. AND THAT ASSUMES THE SHARE PRICE STAYS WHERE IT IS. a 7% real return is not too shabby, but it is probably not what the bulls had in mind. and i am assuming current earnings are more than 100% higher than the current pro forma, and am ignoring the repeated use of pro forma and options dilution, etc! which is why i prefer the "hack-a-stock" approach to forward-returns estimating. all jmho and i could be wrong.