Event:
QCOM reports Q1 earnings and will offer Q2 guidance tonight after the bell.
-the options market is currently implying about a 4.5% move which is just shy of its 8 qtr average move of ~6.5%.
Sentiment/Price Action/ Technicals:
-wall street analysts are overwhelmingly positive on the name with 34 buys, 8 holds and no sells with an average 12 month price target of $63.
-stock YTD has almost doubled the performance of the Nasdaq up ~8%. Stock is up 42% since Sept 1, 2010 outperforming all the major indexes and besting the SOX handily…..Stock is off about 8% from the 52 week high made in early March, but up ~8% from the March 16 low.
-technically you have a chart, in my opinion, that is long-term overbought but near-term oversold and basing. I find the chart rather constructive and if they are able to announce the sort of upside that INTC and guide up sequentially the stock should be able to test the previous highs in the weeks to come.
[caption id="attachment_1191" align="aligncenter" width="300" caption="QCOM 1 Yr chart by Livevol"]
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Fundamentals: stock trades rich to INTC and TXN on a PE basis at about 17.5x 2011 estimates, vs INTC at 11x 2011 and TXN at 13x, but expected sales growth is far superior to both. TXN who is much more exposed to mobile than INTC, much like QCOM had slightly tempered commentary regrding Q2 in relatively stark contrast to INTC>
MY VIEW: This is also a tough one, this company can be very goofy regarding guidance, they often guide up or down and then reverse course within the current quarter and pre-announce…..I have always found this odd that the company doesn’t have better viability but that is why this chart is littered with gaps dating back years…..
TRADES FOR THE BULL AND THE BEAR
TRADE 1: EXPRESS NEAR TERM OPTIMISM THROUGH CALL SPREADS, DEFINE RISK
QCOM (stock Ref 53.42) BUY THE MAY 55 / 57.5 Call Spread for ~.75
-Buy MAY 57.5 call for ~1.20 and
-Sell May 60 Call at ~.45
Break-Even on May Expiration:
Upside: btwn 55 and 55.75 lose up to .75, btwn 55.75 and 57.50 make up to 1.75, Best Case above 57.50 (up 4.3%) make full 1.75.
Downside: worst case stock below 55 you lose .75 premium that you paid.
TRADE RATIONALE: If you are inclined to think that QCOM can show the sort of upside that INTC and outperform TXN that make a targeted bet into earnings event that the stock can retest the previous highs. I want to define my risk here though as the stock has been an outperformer and lower guidance or lack of visibility could cause the stock to break 50 on the downside…..
TRADE 2: EXPRESS NEAR TERM BEARISHNESS RELATED TO THE POTENTIAL LOWER Q2 GUIDANCE
QCOM (stock ref 53.42) BUY THE JUNE 50 / 45 Put Spread for ~..80
-Buy June 50 Put for 1.20 and
-Sell June 45 Put at .40
Break-Evens on June Expiration:
Downside: stock btwn 49.20 and 50 lose up to .80, stock btwn 49.20 and 45 make up to 4.20, Best Case stock 45 or lower and make full 4.20 or 5x your money!
Upside: stock 50 or higher lose the .80 premium you paid or about 1.5% of the underlying.
TRADE RATIONALE: I want to look out to Jun as options are a bit cheaper and if the stock breaks lower on potentially cloudy guidance it will continue to go lower…..I like the payout on this structure and I like the time frame as I think the markets will be particularly volatile as we head into the end of QE2. Again for reasons stated above I want to define risk.