Strong Results and Outlook, but Market Expectations Remain Low

QCOM rose by 6% in Wednesday during after-hours trading following the release of better-than-expected Q1 2012 financial results and a strong fiscal year 2012 outlook. The company reported a year-over-year increase in revenue of 40% to $4.68 billion, and a year-over-year 24% increase in operating income to $1.55 billion. Management forecasted $0.91-$0.97 EPS on $4.6-$5.0 billion in revenue for Q2 2012. For the fiscal year 2012, QCOM expects to generate $3.55-$3.75 EPS from revenues of $18.7-$19.7 billion. CEO Jacobs stated that the first quarter results were attributable to the continued 2G to 3G migration, smartphone adoption and continued strong execution across QCOM’s businesses. Management continues to see favorable trends across the key growth drivers of the firm resulting in their positive 2012 outlook.

QCOM is currently trading at 4.0x EV/IC’, with consensus-based ROI’ and IC’ growth of 35% and 3% respectively, while the market is only expecting a 19% ROI’ with IC’ growth of 6% over the next 5 years. This implies the market is pricing in weaker performance for the company. However, as QCOM continues to take advantage from its strong market share, the growth of smartphones, especially in the emerging markets, and stable royalty rates, they should have no issues producing superior results.

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