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By: Brendan Gilmartin

Qualcomm (QCOM) is slated to report Q4 2012 earnings after the close on Wednesday, November 7. The results are expected to come through at 4:00 p.m. EST, with a conference call slated to follow at 4:30 p.m. Sympathy Plays: Nokia (NOK), Broadcom (BRCM), and Texas Instruments (TXN).

Outliers & Strategy

Non-GAAP Earnings Per Share: For the Q4 2012 period, Qualcomm previously indicated it expects Non-GAAP EPS of $0.78 to $0.84. Guidance tends to be conservative and actual results tend to come in at the high end of forecasts.

Qualcomm said in July it expects Q4 revenue of $4.45 bln to $4.85 bln, an increase of 8% to 18% Y/Y.

Adjusted EPS Guidance & Revenue Guidance (1Q 2013): Guidance for the next quarter will be watched closely, given that results for the Q4 period are largely priced into the shares. The estimates are for Adjusted EPS of $1.00 on revenue of $5.31 bln. (Source: Yahoo! Finance)

At just 14.7x forward earnings, Qualcomm is trading at a discount to historical multiples. With an expected 5-year earnings growth rate of nearly 13.38%, the FWD PEG ratio is just above 1.0.

Over the past several quarters, Qualcomm has benefited from its relationship with Apple (AAPL), supplying chips for the popular iPhone device. In addition, the majority of Android devices run on Qualcomm chipsets.

Recent News

  • 11/05: Nomura Securities upgraded Qualcomm from Neutral to Buy, according to a post on StreetInsider.com. The firm also raised the price target from $60 to $70 and increased earnings estimates for FY2012 & FY2013 based on valuation in the wake of the recent share price pullback and increased 3G adoption rates in developed and emerging economies.
  • 11/05: According to a report from the AP, Sterne Agee reiterated a Buy rating on Qualcomm, citing positive guidance from other Apple iPhone suppliers and the introduction of the 4G iPhone 5 in China later this year.
  • 10/25: According to a report from IDC, the mobile phone market grew 2.4% worldwide in the third quarter, citing leadership from Samsung and Apple - two providers that Qualcomm serves.
  • 10/17: Qualcomm announced a quarterly cash dividend of $0.25 per common share. The yield is 1.65%.
  • 10/10: According to a report on Forbes.com, DA Davidson downgraded Qualcomm from Buy to Neutral and lowered the price target from $70 to $65, citing increased competition in the mobile chip space from the likes of Intel (NASDAQ:INTC) and NVIDIA (NASDAQ:NVDA).


Technical Review

Qualcomm shares have been edging higher over the past week, bouncing off long-term support near $57.00 - a level going back to mid-June. Following the recent advance, however, the shares are facing formidable resistance in the $60.00/$61.00 area - coinciding with the 200-Day SMA. With that being said, a solid earnings release could pave the way for strong upside and a potential run back toward $63.00. Conversely, the aforementioned support at $57.00 is the key level to watch on the downside. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

Qualcomm shares have been edging higher in advance of the 4Q 2012 earnings release, benefiting from increased mobile chip demand, expansion of 3G and 4G networks, solid iPhone sales from Apple, and a rich pipeline of new smartphones. While demand from mobile chipsets appears robust, Qualcomm faces increased competitive threats, macroeconomic headwinds, and lingering doubts over the adoption of Apple's iPhone 5. Technically, the shares are at an inflection point in the $60.00/$61.00 range -a key support resistance zone. Given that the 4Q results have been telegraphed, the trading community is more apt to focus on the outlook for the December quarter.

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Source: Qualcomm At Key Level Ahead Of Earnings