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At Valuecruncher we have long been an interested observer of Qualcomm (NASDAQ:QCOM). QCOM designs, manufactures and markets digital wireless telecommunications products based on technology it has developed [CDMA]. QCOM is an example of a company that has successfully commercialised in-house developed intellectual property [IP].

This week QCOM announced the settlement of a long-running IP dispute with Nokia (NYSE:NOK). Based on this settlement QCOM is trading at the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool to see how the share price shapes up.

QCOM Valuation

QCOM grew revenues from $4.88 billion in 2004 to $8.87 billion in 2007 – a 22% compound annual growth rate. Our assumptions of revenues for the next three years are $10.5 billion in 2008 growing to $13.5 billion in 2010 – a 15% compound annual growth rate. We have projected EBITDA margins to grow from 40.0% in 2008 to 45.0% in 2010. We have used a terminal growth rate of 5%. We calculated this terminal growth rate based on year three growth of 11% dropping to a 4.5% stable growth rate by year 10.

We believe there is still considerable additional growth in mobile globally to come which QCOM is well positioned for. We used a terminal capital expenditure number of $1.0 billion. We have used a WACC (discount rate) of 10%.

Valuecruncher valuation model of QCOM with interactive assumptions

Our analysis incorporates the cash on the QCOM balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of $45.11 per share which is 14% below the current share price of $52.43.

Based on our analysis the current share price looks overvalued. The Nokia settlement is good news but the QCOM share price looks expensive. Play with our assumptions – what does your analysis say?

Stock Position: None.

Source: Qualcomm Overvalued, Even with the Nokia Settlement