Qualcomm (QCOM) Q4 Earnings: What’s in the Cards?

Qualcomm Inc. QCOM is slated to release its fourth-quarter fiscal 2015 financial numbers on Nov 4, after the market close.

Last quarter, Qualcomm had posted a 10.26% positive earnings surprise. Moreover, the company’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 5.24%. Let’s see how things are shaping up for this announcement.

Qualcomm’s decision to vend its L-band spectrum in the U.K., which can be utilized by mobile operators for providing augmented download speeds to customers, should boost the company’s cash position significantly. The escalating demand for the company’s Snapdragon 410 and 210 processors also bode well.

Moreover, the acquisition of Capsule Technologie – a major global provider of medical device integration and clinical data management solutions – by its subsidiary, Qualcomm Life, Inc. should fortify Qualcomm’s hold in the medical Internet of Things (IoT) space. In addition, the company’s increasing traction in adjacent areas like automotive, mobile computing and networking should effectively boost results in the to-be-reported quarter.

However, regulatory issues remain a major headwind. Qualcomm is currently facing the European Union’s (EU) investigation for antitrust concerns. The regulatory body has initiated two probes to determine whether the company has misused its dominant position in the market.

Moreover, the company has lowered its financial outlook for fiscal 2015, for the third time now. The current guidance for total revenue stands in the range of $24.5–$25.5 billion (prior guidance was $25–$27 billion). Revised adjusted EPS is projected in the band of $4.50–$4.70 (earlier $4.60–$5.00). The slashed guidance takes into account Samsung’s decision to use its own microprocessor for smartphones, lower volumes from the Snapdragon platform as well as intensified competition in the Chinese market.

Our proven model does not conclusively show that Qualcomm is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Qualcomm’s earnings ESP is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are poised at 71 cents.

Zacks Rank: Qualcomm has a Zacks Rank #5 (Strong Sell). Note that, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Here are some companies to consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Facebook, Inc. FB has an earnings ESP of +5.71% and a Zacks Rank #1.

CenturyLink, Inc. CTL has an earnings ESP of +1.45% and a Zacks Rank #2.

Cogent Communications Holdings, Inc. CCOI has an earnings ESP of +16.67% and a Zacks Rank #3.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>