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Options Activity In QCOM Explodes, Should You Follow The Bulls?

An options trade bought 750 contracts of QUALCOMM (QCOM) last week, after an analyst report increase the company’s earnings estimates. However, given the volatile market backdrop, is QCOM an ideal investment now? Read more to find out.

QUALCOMM Incorporated (QCOM) manufactures semiconductors and foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives. The company has an ISS Governance QualityScore of 3, indicating relatively low governance risk.

QCOM shares surged intraday last Tuesday, after one trade bought 750 contracts for more than $200,000 in premium. This comes after KeyBanc Capital raised QCOM’s fiscal 2022 earnings guidance by 3.8% to $13.74 per share, citing the company’s agreements to supply processors and 5G modems to Apple (AAPL) and Samsung. However, the stock declined 8.1% over the past month due to the extended market correction.

Here’s what could shape QCOM’s performance in the near term:

Bullish Growth Prospects

QCOM’s revenues and EPS are expected to rise 36.3% and 50% year-over-year to $10.89 billion and $2.88, respectively, in the fiscal third quarter (ending June). Analysts expect revenues to improve 28.9% year-over-year in the fiscal fourth quarter (ending September), 33.2% in fiscal 2022, and 7.4% in fiscal 2023.

Moreover, Street expects the company’s EPS to improve 29.3% in the next quarter, 47.4% in the current year, and 4.8% next year.

Discounted Valuation

In terms of forward non-GAAP P/E, QCOM is currently trading at 9.61x, 42.8% lower than the industry average of 16.80x. Its forward non-GAAP PEG multiple of 0.56 is 56.7% lower than the industry average of 1.29.

In addition, the stock’s forward EV/EBITDA and Price/Cash Flow of 7.34x and 10.77x are significantly lower than the industry averages of 11.28x and 15.61x, respectively.

Consensus Rating and Price Target Reflect Potential Upside

Of the 19 Wall Street analysts that rated QCOM, 12 rated it Buy, while seven rated it Hold. The 12-month median price target of $193.24 indicates a 59.6% potential upside from Friday’s closing price of $121.11. The price targets range from a low of $150.00 to a high of $250.00.

Favorable POWR Ratings

QCOM's overall rating of A translates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of B for Value and Quality. Its discounted valuation compared to its peers justifies the Value grade. In addition, QCOM’s trailing-12-month ROE of 107.55% is 1303.1% higher than the industry average of 7.67%, in sync with the Quality grade.

Of the 96 stocks in the B-rated Semiconductor & Wireless Chip industry, QCOM is ranked #7.

Beyond what I’ve stated above, view QCOM ratings for Growth, Momentum, Sentiment, and Stability here.

Bottom Line

The increased demand for semiconductors globally outpacing the supply has boosted QCOM’s profit margins. As this trend is expected to continue, QCOM is an ideal investment now.

How does QUALCOMM (QCOM) Stack Up Against its Peers?

QCOM has an overall POWR Rating of A, which equates to a Strong Buy rating. Check out these other stocks within the Semiconductor & Wireless Chip industry with A (Strong Buy) ratings: Cirrus Logic, Inc. (CRUS), United Microelectronics Corp. (UMC), and Xperi Corporation (XPER).

QCOM shares were trading at $120.99 per share on Monday afternoon, up $0.17 (+0.14%). Year-to-date, QCOM has declined -33.21%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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