Qualcomm Incorporated (QCOM) is the world’s leader in advancing and commercializing foundational technologies for the wireless industry.
The company’s technologies, products, and services are utilized in mobile devices and various wireless products, such as network equipment,
broadband gateway equipment, and consumer electronic devices.
Qualcomm’s inventions have played a critical role in the advancement of smartphones, which have connected billions of people. The company is a major player in 3G (third generation), 4G (fourth generation), and 5G (fifth generation) wireless technologies, and it should continue to retain its leading position amid its numerous patents and proprietary know-how.
I am bullish on QCOM. (See Analysts’ Top Stocks on TipRanks)
Well-Positioned for Continuous Success
The 5G market is still in its infancy, as coverage has yet to be achieved globally, especially in emerging markets.
Still, Qualcomm has been positioning itself to grow both from 5G’s increasing adoption and the upcoming utilization cycle. Following 5G’s peak in smartphones at some point in the next few years, Qualcomm should be able to extend the tech’s usage on numerous growth initiatives in Automotive and IoT (e.g., smart cities).
Qualcomm is gradually transitioning into a solution provider for the digital transformation of the global economy. The ongoing market expansion in areas such as high-end computing, tablets, wearables, and self-driving cars should keep driving annual sales growth for years to come. Qualcomm is currently benefiting from this favorable environment, which was evident in its most recent quarterly results.
In Q3, Qualcomm’s handset (e.g., smartphones), RF front-end, Automotive, and IoT-related revenues achieved an aggregate revenue of $2.6 billion. Excluding handsets, which grew by 57%, every other segment grew 80%+, leading to total QCT (Qualcomm CDMA Technologies) revenue growth of 70%.
I am particularly interested in the automotive industry’s total contribution potential to Qualcomm’s revenues. The company’s approximately $10 billion revenue-design win pipeline should ensure rapidly growing revenues in this division for Qualcomm, especially considering that the backlog itself continues to grow.
Capital Returns
What I like about Qualcomm is not just its future growth potential, but also its well-established track record of capital returns. Following the company’s latest dividend hike of 4.6% last March, Qualcomm’s dividend has grown annually for 19 consecutive years. Hence, the company is likely on track to achieve a Dividend Aristocrat Status.
Furthermore, the company is actively buying back stock continuously, which further adds to total shareholder returns. Qualcomm recharged its stock repurchase program by another $10 billion earlier in October, which represents 6.7% of the current $149 billion market cap.
The Valuation
Qualcomm’s forward P/E currently hovers at around 14, which in my view, is an attractive multiple considering the company’s massive moat and patent protection advantages.
Qualcomm’s revenues could fluctuate based on the cyclicality of the underlying market. However, backed by a strong project pipeline and 5G’s growth potential, the current price levels present a charming opportunity for investors, in my opinion. This is especially true when considering the growing capital returns.
Wall Street’s Take
Turning to Wall Street, Qualcomm has a Strong Buy consensus rating, based on 11 Buys and three Holds assigned in the past three months. At $177.46, the average Qualcomm price target implies 34.19% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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