Qualcomm: Don't Hang Up

 | Jan 31, 2013 | 11:30 AM EST
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The last time I wrote about Qualcomm (QCOM), I was bullish. For some reason, I thought QCOM was an $80 stock. But since my May article, the stock is up just 9%.

I thought a shortage for LTE chipsets would eventually translate to higher earnings and revenue for Qualcomm. Well, this quarter it did. For the quarter ending Dec. 30, revenue rose 28.6% to $6.02 billion. Net income jumped 36% to $1.91 billion. The company shipped 182 million mobile chipsets, up 17% year over year. Moreover management guided Q2 higher. The company now expects chipset shipments in the 163 million to 173 million range and revenues of $5.8-$6.3 billion. For fiscal 2013, management predicted revenue of $23-24 billion and earnings per share of $4.25-4.45.

Management estimated the industry would ship some 233-237 million 3G/4G devices with an estimated average selling price of $224-230 per unit.

In May I thought Qualcomm would do about $4.17 and trade around 19x or 20x estimates. I still think QCOM can get to $80. At the mid-point of guidance, if investors paid just 18x estimates, Qualcomm would easily get to $80. Where are you going to get mid-to-high 20s revenue growth, with a gross margin over 60% and an operating margin of 36%? Those kinds of numbers don't come around too often.

It seems tech investors are afraid of overpaying for semiconductor names in the communications space. I get it. Law of large numbers. Slowing growth. Fear of margin pressure and possible competition from Intel (INTC) is always on investors' lists of things to worry about.  But if QCOM can catch a few analyst upgrades, I think it will break above its 52-week high of $68.87 on its way to $80. Just remember, the stock has outperformed the S&P 500 by 50% in the last five years. They must be doing something right.

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