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What Makes InterDigital (IDCC) a Solid Investment Proposition?

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Earnings estimates for the current fiscal for InterDigital, Inc. (IDCC - Free Report) have increased 71.6% over the past year, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Growth Drivers

Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies, which enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions, which are used in digital cellular as well as wireless 3G, 4G, and IEEE 802-related products and networks.

A well-established global footprint, diversified product portfolio and ability to penetrate different markets are key growth drivers for the company. Apart from a strong portfolio of wireless technology solutions, the addition of technologies related to sensors, user interface and video to its offerings is likely to drive considerable value, given the massive size of the market it offers licensing technologies to.

InterDigital recently updated its guidance for second-quarter 2022. The improved outlook offers better clarity regarding its business operations as it aims to navigate through the post-pandemic market revival and is likely to instill investors’ confidence in the stock.

Management currently expects second-quarter revenues to lie between $120 million and $124 million, up from the previously guided range of $114 million-$120 million, reflecting the operating leverage of the company’s business model. This includes recurring revenues of $98-$100 million. The Zacks Consensus Estimate for revenues is pegged at $115 million.

The improved top-line expectation is primarily driven by a license agreement inked during the quarter with an unnamed consumer electronics and other product manufacturer. InterDigital has also connected automobile license agreements with General Motors Company and Ford Motor Company through a licensing platform. These contracts are likely to generate incremental revenues for the company in the upcoming quarter.

InterDigital’s commitment to licensing its broad portfolio of technologies to wireless terminal equipment makers, which allows it to expand its core market capability, is laudable. It has leading companies, such as Huawei, Samsung, LG, and Apple, under its licensing agreements. The company is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. InterDigital aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas by leveraging its research and development capabilities, technological knowhow and rich industry experience. At the same time, it intends to enhance its licensing revenue base by adding licensees and expanding into adjacent technology areas that align with its intellectual property position.

In addition, more and more companies are increasingly offering the work-from-home option to employees to ensure their safety and wellbeing amid the lingering coronavirus scare. Several firms are also providing a secure and connected workplace setup through quick onboarding and enablement services to support the seamless continuity of businesses and enable employees to fulfill their professional obligations. This, in turn, is likely to create new revenue-generating opportunities for InterDigital, as humans become solely dependent on the digital platform to stay connected not only for their professional lives but also for online education, shopping, dining and entertainment.

The stock has a long-term earnings growth expectation of 15%. It delivered an earnings surprise of 141.1%, on average, in the trailing four quarters. With a modest dividend of 2.3%, InterDigital currently appears to be an enticing investment option in this volatile market.

Other Key Picks

Sierra Wireless, Inc. (SWIR - Free Report) carries a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters.

Over the past year, Sierra Wireless has gained 18.8%. Earnings estimates for the current year for the stock have moved up 616.7% since June 2021. The company continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.

Qualcomm Incorporated (QCOM - Free Report) , carrying a Zacks Rank #2, is another key pick for investors. It has a long-term earnings growth expectation of 16.1% and delivered an earnings surprise of 12.2%, on average, in the trailing four quarters.

Earnings estimates for the current year for the stock have moved up 47.5% over the past year, while that for the next fiscal is up 47%. Qualcomm is likely to benefit in the long run from solid 5G traction and a surge in demand for essential products that are the building blocks of digital transformation in the cloud economy.

TESSCO Technologies Incorporated (TESS - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 61.9%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 40.7% since Jun 2021.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.