Qualcomm, Inc.: Three Reasons QCOM Stock Is a Winner

QCOM StockQualcomm, Inc. (NASDAQ:QCOM) has been rewarding investors with generous gains, mainly through impressive financial results over the past several quarters.

In its June quarter alone, the semiconductor and telecommunications equipment company posted impressive growth. Adjusted earnings of Qualcomm stock increased 17% to $1.16 per share, which is higher than the $0.97 per share expected by Wall Street analysts. QCOM stock revenues rose three percent to $6.0 billion, which is better than the $5.58-billion consensus estimate. (Source: “Qualcomm Announces Third Quarter Fiscal 2016 Results,” NASDAQ, July 20, 2016.)

Annual average earnings and revenue growth rates were nearly 11% and 15%, respectively, from 2011 to 2015 for Qualcomm stock.

When it comes to stock performance, Qualcomm stock gained more than 16% over the past year, or more than 26% year-to-date. I believe that the company will remain an industry leader, and QCOM stock will continue to be a winner over the coming years. Here are three other reasons to be bullish on Qualcomm stock.

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What Do QTL and QCT Business Segments Mean for Qualcomm Stock?

In the third quarter, CEO Steve Mollenkopf reported that Qualcomm’s “Technology Licensing” (QTL) division achieved significant progress; more than 110 firms signed licenses that are consistent with the terms of the resolution, which was approved by China’s National Development and Reform Commission (NDRC) last year.

The business unit is expected to ship 1.625 billion to 1.725 billion 3G and 4G devices globally for the full year 2016, representing a unit growth rate of around eight percent. Its revenue is expected to be around $7.4 billion to $7.8 billion this year.

Qualcomm’s “CDMA Technologies” (QCT) segment had positive demand for its new chipsets across the mid- and high-end smartphone industry, particularly with the top-10 vendors in China. The company also received incremental orders for its lower-tier chipsets in the country while its “Snapdragon 820” chipset captured more than 150 premium-tier smartphones and tablet designs. The Snapdragon 820 with the “X12 LTE” modem is the most advanced processor available in the market, as it offers the fastest connectivity, superior graphics, photography, power, and battery efficiency.

The company recently introduced “Snapdragon 821,” which was designed to provide faster speed, improved power savings, and greater application performance (10% better than the Snapdragon 820). With the new processor, Qualcomm wants to ensure that it is keeping pace with users’ increasing demands for performance. Snapdragon 821 is expected to set a new standard for flagship smartphones, tablets, VR head-mounted displays, and other new devices.

The QTL and QCT business segments posted revenues of $2.04 billion and $3.85 billion, respectively, in the third quarter.

Pursuing New Growth Opportunities to Boost QCOM Stock

Additionally, Qualcomm continues to pursue new opportunities and expand its presence in several growth areas, including automotive, drone, and the Internet of Things (IoT).

The company obtained significant design wins from global automakers including Audi AG (ETR:NSU). Its “Snapdragon 602A” system on chip (SoC) will be integrated into the Audi 2017 model. Audi used Qualcomm’s second-generation multi-mode 3G/4G LTE chipset on its 2013 “A3” model and the 3G connectivity on its 2010 “A8” model. (Source: “Audi 2017 Vehicles to Integrate Qualcomm Snapdragon 602A Infotainment Processor,” Qualcomm, Inc., January 5, 2016.)

In July 2016, Qualcomm signed a wireless electric vehicle charging (WEVC) license agreement with Lear Corporation (NYSE:LEA), a global supplier of automotive seating and electrical systems. Under the agreement, Lear received a royalty-bearing license to develop and supply WEVC systems for plug-in hybrid electric vehicles (PHEV) and electric vehicle (EV) manufacturers and wireless charging infrastructure firms based on “Qualcomm Halo” technology. (Source: “Qualcomm and Lear Corporation Sign Commercial Wireless Electric Vehicle Charging License Agreement,” Qualcomm, Inc., July 27, 2016.)

Qualcomm is also collaborating with Google (NASDAQ:GOOG) to help automakers create powerful infotainment systems using “Android” as a common platform with the automotive processors Snapdragon 820A and Snapdragon 602A. For decades, leading automakers have been using Qualcomm’s in-vehicle technologies. The Snapdragon LTE modems are already embedded in more than 20 million vehicles globally.

Technology companies are accelerating product developments in IoT, where Qualcomm enjoys strong momentum with its “Snapdragon Wear 1100” for wearable devices. More than 60 manufacturers are now using Qualcomm’s low-power LTE IoT modem in 100-plus product designs, and more than 350 home and enterprise products are equipped with its “Wave 2 11ac” standard for Wi-Fi networks.

Verizon Communications Inc. (NYSE:VZ) recently decided to pre-integrate its “ThingSpace” IoT platform-as-a-service with Qualcomm’s “MDM9206 Category M” (Cat M1) LTE modem to deliver next-generation products and services that require low power and low bandwidth. The platform will be available for integration early next year. (Source: “Qualcomm and Verizon Double Down on the Internet of Things,” Qualcomm, Inc., September 6, 2016.)

On the other hand, several commercial drones currently available in the market are powered by the “Snapdragon Flight” platform, which offers superior control and navigation capabilities. On September 6, Qualcomm and AT&T Inc. (NYSE: T) announced that the two companies would start testing drones on commercial 4G LTE networks. The tests will allow the companies to determine a wide-scalable LTE optimization for safe and legal commercial use of small unmanned aircraft systems (SUAS), and help in the development of positive drone regulations and 5G specifications. (Source: “Qualcomm and AT&T to Trial Drones on Cellular Network to Accelerate Wide-Scale Deployment,” Qualcomm, Inc., September 6, 2016.)

Furthermore, Qualcomm’s leadership position in the wireless broadband category is still solid. Its “Snapdragon X16” modem, expertise in gigabit LTE technology and 4G using advanced techniques could drive the transition to 5G. Regulators around the world are starting to allocate spectrum for 5G that is consistent with its design and development efforts, which should help position the company as a dominant player in the field.

QCOM Stock Has Robust Balance Sheet and Dividends Are Up

It is worth noting that Qualcomm stock has a strong balance sheet. The company’s total assets were $50.78 billion, and its total liabilities were $20.15 billion as of June 26, 2016. Its total current liabilities were $6.84 billion, which the company could pay anytime. It had $31.0 billion of cash and marketable securities by the end of the quarter.

The company is shareholder-friendly, given its commitment to returning capital to shareholders. In the third quarter alone, it returned $881.0 million to stockholders through dividend payments and stock buybacks. Qualcomm has already returned more than $5.9 billion to shareholders this year, including the completion of the remainder of its $10-billion stock buyback commitment. It is on track to meet its target of returning 75% of its free cash to investors in 2016.

Take note that Qualcomm stock consistently raised annualized dividends over the past several years from $0.81 per share in 2011 to the current $2.12 per share. (Source: “Qualcomm Increases Quarterly Dividend by 10 Percent,” NASDAQ, March 8, 2016.)

The Bottom Line for Qualcomm Stock

Qualcomm, Inc. is determined to position itself for continued leadership in mobile and other industries to achieve long-term growth and profitability. Its investments in 5G and other growth areas such as automotive, drone, and IoT should boost QCOM stock onwards.

The company is well positioned to compete and gain significant market share in the fast-growing automotive infotainment and connectivity, drone, and IoT markets. The global automotive infotainment and connectivity market is expected to reach $33.8 billion by 2022. The commercial applications of drones and IoT products and services are forecasted to increase to $127.0 billion and $1.7 trillion worldwide, respectively, by 2020.

Wall Street analysts also believe that Qualcomm will outperform the market and they have predicted that QCOM stock could surge as much as $75.00 per share, which is an upside of over 18% from its current trading price of around $63.00 per share.