Benzinga - by Zacks, Benzinga Contributor.
Qualcomm Incorporated (NASDAQ: QCOM) shares have witnessed a steady uptrend since November 2023 barring minor hiccups, with the ebb and flow attributable to various macroeconomic developments and corporate achievements. While such ups and downs are part of a stock's progression, the sudden turn of events often tests the stock's inherent strength to withstand the storm and its ability to come up trumps. We believe that Qualcomm has the requisite wherewithal to emerge victorious from the apparent upheaval and strike the right chords in the near future.
However, not all was hunky dory for Qualcomm as it faced some operating challenges in China. The chip-making firm has a significant presence in more than 12 cities in the country, aiming to drive advancements in semiconductors and mobile telecommunications for the larger benefit. The company has been a key supplier of chips and other related components to local smartphone manufacturers like Xiaomi, Huawei and its spin-off brand Honor.
But trouble began with the continued Sino-US trade spat that led the communist nation to impose a ban on the use of iPhones in government offices and state-backed entities as part of its concerted effort toward self-reliance. The restrictions on Apple had an apparent effect on Qualcomm, which is one of the leading suppliers to the iPhone manufacturing firm. Moreover, as QCOM boasts one of the biggest footprints in the communist nation by a U.S.-based firm, the market uncertainties seemed to be taking a toll on its stock. Moreover, as China accounts for the lion's share of Qualcomm's revenues, any disruption in local operation is bound to have a ripple effect across the company.
However, China-based firms like Honor continued procuring core chips from Qualcomm despite nationalist calls to support domestic manufacturers as the chips enabled efficient optimization of Honor handsets and enriched performance standards. Moreover, Qualcomm has historically supplied older-generation 4G chips to Huawei, which are believed to be safe and do not jeopardize national security interests. Consequently, the company managed to avoid any penal action by the U.S. Commerce Department regarding any wrongdoings that harm the safety and integrity of the nation.
Shares appeared to resonate with Qualcomm maintaining an optimum balance between its China operations and conforming to the national interests of both countries. It is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge with a diversified revenue stream. It is witnessing healthy traction in EDGE networking that helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets.
The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are also fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes it is on track to become the largest smartphone RF front-end supplier by revenues in the near future.
The company intends to harness artificial intelligence to meet increased demands for essential products and services that are the building blocks of digital transformation in a cloud economy. Qualcomm envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio.
Amid this backdrop, Qualcomm is slated to report second-quarter fiscal 2024 results on May 1 after the closing bell. In the last reported quarter, the company beat the Zacks Consensus Estimate by 37 cents. The chip-making firm is expected to have recorded a top-line expansion year over year, backed by solid 5G traction, greater visibility and a diversified revenue stream.
The Zacks Consensus Estimate for total revenues for the company stands at $9,301 million. It generated revenues of $9,275 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.30 per share, indicating growth from $2.15 in the year-earlier quarter.
Our proven model predicts an earnings beat for QCOM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. With an Earnings ESP of +0.11% and a Zacks Rank #2, QCOM has a high probability of an earnings beat.
Qualcomm has a VGM Score of B. The stock is up 43.5% over the past year compared with the industry's rise of 19.3%. With solid fundamentals and healthy revenue-generating potential driven by robust demand trends, it appears to be a solid investment proposition and a long-term stock to have in your portfolio.
Other Stocks to Consider Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:
United States Cellular Corporation (NYSE: USM) is set to release quarterly numbers on May 3. It has an Earnings ESP of +36.36% and a Zacks Rank #1.
The Earnings ESP for Silicon Motion Technology Corporation (NASDAQ: SIMO) is +5.96% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on May 2.
The Earnings ESP for Corning Incorporated (NYSE: GLW) is +0.40% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Apr 30.
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