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

To: hueyone who wrote (125947)	12/10/2002 1:53:29 PM
From: Jim Mullens	Read Replies (4) \| Respond to of 152472

Huey & Mucho, thanks for your replies. Huey, you wrote- 1. “Imo, the "E" in PEs traditionally refers to trailing twelve month (ttm) GAAP earnings unless otherwise specified.” It’s my understanding that the “E” can refer to several periods when evaluating the PE of a company (ttm, 2past/2fwd qtrs, current fy, etc.). When projecting a future share price of a company I would think the “E” based on future earnings would be more meaningful than looking backwards. I believe if you use the major “analyst” earnings/ target reporting services (First Call, Zacks) you will find that their (and the “analysts”) estimates are based on pro forma (recurring operations) and exclude non-recurring gains/losses. 2. “Are not your reported Value Line PEs based on trailing twelve month GAAP earnings as well?” Value Line generally reports earnings from recurring operations, excluding non-recurring gains/losses. The Value Line history probably does reflect earnings growth over the same period as it uses for the average PE. Therefore, the PEG ratios I calculated relate to trailing earnings growth rates. None the less, it gives an historical comparison as to the relationship of earnings growth rates and the PE ratio. In periods such as the late ‘90’s, when projected growth rates were higher than those in prior years, I would suspect that the PEG ratio would have also been higher. Mucho, you wrote- 1. “you seem to be under the impression that PEG is a real metric. it's not. it was made up in the bubble years to justify ridiculous PEs. “ You should have preceded your statement with “IMO”. A PEG ratio is a means of calibrating a companies future earnings expectations with its growth rate. I believe that you would agree with me that a company that is growing its earnings at a 20% clip should have a higher PE than one growing at 5%. 2. “when one uses a PE based on next year's pro forma "earnings", that number is also a fantasy, so the resulting "pro forma PEG based on next year's pro forma PE fantasy" is a double fantasy. “ I guess any forecast of the future (E, GR, etc) could be considered “fantasy” by some. But, it’s what we have to work with. I don’t believe any serious investor would project a companies future based entirely on it’s past. 3. “thus leaving the PEG believers in QCOM out on a $1000-price-target limb in late 99)” I believe you forgot to mention that the $1000 target was pre 4-1 split. And, as outrageous as that target now appears, it might well have been achievable if certain events had not been delayed by extraneous political/ economic forces. (China Embassy bombing, WTO negotiations, GSM community cannibalizing the CDMA standards process for their self interests and delaying 3G- WCDMA, Y2K capital expenditure excesses/ severe telecom depression, etc,etc). 4. “and rely on forward analyst consensus estimates of earnings/handset growth, which are almost always laughably wrong.” You’re right, I really don’t have much faith in most of those “analysts”. IMO, most have significantly understated Qualcomm’s EPS estimates and growth rate. Qualcomm even has done such for 2003 in order to maintain a conservative posture. IMO, that’s why they will be continually raising their guidance throughout the year as they did last week and will do next January. 5. “Warren Buffett thinks almost no S&P500 cos will achieve 15% compound earnings growth over the next decade” “Almost no” excludes a few, and one of those few (IMO) will be Qualcomm. Have you done a comparison of share price of BRK vs QCOM for the past 5 years. What have you done for me lately, Warren? 6 “didn't you notice that earnings went nowhere the last three years even as CDMA was supposedly taking over the world?” I sure have, and it hasn’t made me a happy camper either. However, I have noticed that Qualcomm is one of the very few companies to post significant earnings over that period. And, except for the reasons stated in 3 above it would no doubt have done better. Hope this helps- Jim