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Is a Beat in the Cards for Qualcomm (QCOM) Q1 Earnings?

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Qualcomm Inc. (QCOM - Free Report) , the largest manufacturer of wireless chipsets based on baseband technology in the U.S., is scheduled to report first-quarter fiscal 2017 numbers on Jan 25, after market close.

Last quarter, the company posted an impressive 19.39% positive earnings surprise. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in each of the previous four quarters, with an average beat of 15.25%.

However, we note that shares of Qualcomm have underperformed the Zacks classified ‘Wireless Equipment’ industry’s growth over the past three months. The stock witnessed a loss of 3.28% compared to the industry’s gain of 0.6%.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Qualcomm is likely to beat on earnings because it has the perfect combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +4.72%. This is because the Most Accurate estimate stands at $1.11 whereas the Zacks Consensus Estimate is pegged lower at $1.06. A favorable Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Qualcomm currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Qualcomm’s favorable Zacks Rank #3 and positive Earnings ESP makes us reasonably confident of a positive earnings beat this time around.

What is Driving the Better-than-Expected Earnings?

Qualcomm has always been coming up with updated Snapdragon processors and applications to retain its leadership position in the global wireless baseband chipset market. The company’s recent deal to buy the Netherlands-based chipset giant NXP Semiconductors (NXPI) should help it to generate more annual revenues and diversify its business model in the broader global semiconductor market.

The company’s active involvement in the production of chipsets for the 5G standard and partnership with U.S. telecom behemoths like Verizon Communications Inc. (VZ - Free Report) and Ericsson (ERIC - Free Report) for the same, have driven growth for the company. Moreover, Qualcomm’s widening presence in adjacent opportunities, including automotive, networking, and mobile computing also bode well. Qualcomm’s Snapdragon processor have helped the company fortify its foothold in the IoT and technology market.

However, the company has been facing regulatory proceedings of late. The European Union (EU) Competition Commission levied charges against its anti-competitive practices in the chip making industry. Aggressive competition in the mobile phone chipset market has been hurting Qualcomm’s profits. The company faces severe competitive threats from its closest rival, Intel Corporation (INTC - Free Report) , which has been redesigning its chipsets for the mobile computing market. We wait to see if this hurts Qualcomm’s sales in the fiscal first quarter.

Qualcomm Inc. Price and EPS Surprise

 

Qualcomm Inc. Price and EPS Surprise | Qualcomm Inc. Quote

A Key Pick

Here is a company that has the right combination of elements to post an earnings beat this quarter.

BlackBerry Limited , with an earnings ESP of +50.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

BlackBerry’s earnings surpassed the Zacks Consensus Estimate in each of the previous four quarters, with an average beat of 62.50%.

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