The world’s largest mobile chipset developer, Qualcomm Incorporated (QCOM), is scheduled to report its first-quarter fiscal 2015 results after the closing bell on Jan 28.
In the previous quarter, Qualcomm’s earnings surpassed the Zacks Consensus Estimate by a margin of 5.0%. Let’s see how things are shaping up for this announcement.
Factors to Influence this Quarter
Qualcomm’s latest chipsets for WiFi, RF360, multimode 3G and 4G LTE from its flagship Snapdragon platform have been doing extremely well. Meanwhile, we expect the company to benefit considerably from its extensive five-mode LTE chipset portfolio developed on its baseband technology. Notably, the five-mode standard includes LTE, FDD-LTE, TD-SCDMA, WCDMA and GSM.
Qualcomm generates approximately 29% of its total revenue from the licensing business. However, this business accounts for almost 77% of the company’s net profit. Qualcomm is currently involved in a royalty dispute with a major customer in China. Moreover, some small companies haven’t agreed on a royalty payment as the National Development and Reform Commission (NDRC) is yet to come up with its decision. A few companies are also under-reporting the amount of phones sold, for which they should have ideally paid license fees. Qualcomm has issued a cautious outlook for fiscal 2015 taking into account the ongoing licensing business issues in China.
Earnings Whispers
Our proven model does not conclusively show that Qualcomm is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or at least 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Qualcomm has a Zacks ESP of 0.00%.That is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at $1.12.
Zacks Rank: Qualcomm’s Zacks Rank #3 (Hold) increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.
Note that we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some companies for investors to consider, that, according to our model have the right combination of elements to post an earnings beat this quarter:
Charter Communications, Inc. (CHTR) with an earnings ESP of +121.74% and a Zacks Rank #2 (Buy).
Comcast Corporation (CMCSA) with an earnings ESP of +1.30% and a Zacks Rank #3.
American Tower Corporation (AMT) with an earnings ESP of +4.0% and a Zacks Rank #3.
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