Company Description: Qualcomm Incorporated focuses on developing products and services based on its advanced wireless broadband technology.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
QCOM is trading at a discount to only 1.) above. When also considering the NPV MMA Differential, the stock is trading at a 11.0% discount to its calculated fair value of $63.82. QCOM earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
QCOM earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. QCOM earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 2003 and has increased its dividend payments for 14 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
QCOM earned a Star in this section for its NPV MMA Diff. of $3,082. This amount is in excess of the $2,100 target I look for in a stock that has increased dividends as long as QCOM has. The stock's current yield of 3.87% exceeds the 2.65% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: Broadcom Corp. (AVGO) with a 1.6% yield, Intel Corporation (INTC) with a 3.2% yield, and Texas Instruments Inc. (TXN) with a 2.4% yield.
Conclusion: QCOM earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks QCOM as a 5-Star Very Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $66.99 before QCOM's NPV MMA Differential decreased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 3.3%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 7.4%. This dividend growth rate is below the 8.9% used in this analysis, thus providing a margin of safety. QCOM has a risk rating of 1.75 which classifies it as a Medium risk stock.
QCOM is the largest global manufacturer of wireless chipsets. Its intellectual property and strong service provider relationships help position it well. The company currently a low debt to total equity of 28% and a free cash flow payout at 59%, which is below the 60% maximum I look for. The stock is trading below my calculated fair value of $63.82, as such I will look for opportunities to add to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in QCOM (11.6% of my High Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
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Tags: QCOM, AVGO, INTC, TXN,
