Qualcomm is significantly undervalued !
Last week's announcement that QCOM and China's National Development and Reform Commission had reached a resolution eliminated one of the problems depressing this stock. Click hereThis highly rated technology company is cheap at 13.5x earnings and a yield of 2.3% !
Valuation:
Our first graph shows the Return on Equity over the last 20 years (using non-GAAP earnings and estimates). This shows a healthy level of profitability of around 20% over the last 10 years..
During this period the valuation of the stock shows a pronounced secular decline as measured by its Relative Payback.
The current Relative Payback is 70%. Using a conservative relative valuation range of 75-120% of the market's Payback, the projected price range is $73 to $161. A neutral valuation would be reached 57% above the current price.
Given that there maybe other uncertainties concerning any equity, we calculate the break-even earnings on the stock price. In Qualcomm's case, the implied earnings (IEPS) for 2015 are $4.25 vs the non-GAAP estimate of $5.25. The implied earnings would generate a growth rate of 11.4% vs the current Reinvestment Return (RR) of 16.4%. These compare to the historical rate of growth of 16.7% (2000-2015) and consensus expectations for long term growth of 14.2%.
Market recognition:
This chart shows an index of the stock over the last 6 months together with its Relative
Strength compared to the S&P 500. The latter is a 5 day moving averaged which turned up on February 4th.
Robert L. Colby
