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 premium to all four valuations above. Since QCOM's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 120.7% premium to its calculated fair value of $38.89. QCOM did not earn any Stars in this section.
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 one Star in this section for 3.) above. 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 16 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
The NPV MMA Diff. of the $430 is below the $1,900 target I look for in a stock that has increased dividends as long as QCOM has. The stock's current yield of 2.89% exceeds the 2.74% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: Broadcom Corp. (AVGO) with a 3.3% yield, Intel Corporation (INTC) with a 2.5% yield, and Texas Instruments Inc. (TXN) with a 2.6% yield.
Conclusion: QCOM did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks QCOM as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $47.97 before QCOM's NPV MMA Differential increased to the $1,900 minimum that I look for in a stock with 16 years of consecutive dividend increases. At that price the stock would yield 5.2%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,900 NPV MMA Differential, the calculated rate is 9.8%. This dividend growth rate is above the 4.2% used in this analysis, thus providing no margin of safety. QCOM has a risk rating of 2.00 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 has a debt to total equity of 81% (up from 49%) and a free cash flow payout at 160% (up from 83%), both of which are above the maximum I look for. The stock is trading above my calculated fair value of $38.89, as such I will not initiate a position at this time.
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 held no position in QCOM (0.0% 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,
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