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Qualcomm (QCOM) has been a core position in my growth portfolio for over a year. I view it as a winner in the smartphone space regardless of whether Apple (AAPL), Samsung or some other player emerges on top. However, the strength of its just released earnings report and 2nd quarter sales and earnings forecast surprised even me. The company is hitting on all cylinders and the stock is going higher.

Positives from forecast and earnings report:

  • Qualcomm earned $1.09 a share on just over $6B in revenue. Consensus estimates were for 97 cents a share on $5.9B in sales.
  • The company predicts profit in the 2nd quarter will be 98 cents to $1.06 a share on revenue of $5.8 billion to $6.3 billion. This compares to analysts' estimates of 94 cents a share on revenues of $5.87B.
  • The forecast reflects growth in developing markets and brisk demand from first-time smartphone buyers according to management.
  • Citigroup immediately raised its price target to $81 a share from $75 a share on the back of this earnings report.

4 additional reasons to buy QCOM on any pullback after the initial boost from earnings:

  1. Consensus earnings estimates for both FY2013 and FY2014 had already moved up significantly over the past three months. Look for this trend to accelerate in the next two weeks on the strength of this earnings report and forecast.
  2. Even after its recent run, the stock is still selling near the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  3. An investor is paying less than 14x forward earnings for a stock with five year projected PEG of 1. Revenues should grow faster than 20% (probably closer to 25%) in FY2013.
  4. The company has over $12B in net cash on the books (over 10% of market capitalization) and has grown operating cash flow by 50% over the last three years.
Source: Qualcomm Is En Fuego