QCOM: Fiscal Q2 Report Tonight, Longs May Want To Consider Stock Replacement

by Dan April 18, 2012 3:07 pm • Commentary

QCOM reports fiscal Q2 tonight after the bell, the options market is implying about a 4.5% move* vs the 8 qtr avg move of about 5% (6 of those moves have been up while only 2 have been down).

* with the stock about 67.25, the Apr 67.50 straddle is offered at about 2.85, you would need a move of about that to break-even by Friday’s close. 

-Sentiment is overwhelmingly positive in the name with 38 Buys, 6 Holds and only 2 Sells, with an avg 12 month price target of ~$72.  Short interest is basically non-existent at a little over 1% of the float.

-Price Action: QCOM Is trading within a few % of the 52 week highs made in March, which actually also happen to be highs not seen since the Tech-Wreck that was 2000.  

[caption id="attachment_10697" align="aligncenter" width="300" caption="14 yr chart of QCOM from Bloomberg"][/caption]


The stock is up 22.5% ytd fairly dramatically out-performing the SOX up 15% ytd.  At about $67 the stock trades at about 18x fiscal 2012 earnings expectations, which doesn’t seem unreasonable when they are expected to grow earnings by about 18% this year and sales by 30%.  This sort of growth, excluding AAPL in the large cap tech world is very hard to come by, especially for a Semi company.

Volatility Color:

April volatility is pumped going in to earnings with the at-the-money April implied volatility trading almost 30 points higher than May.

Also, looking at the year chart of iv30 vs. hv30 there seems to be a nice drop in implied vol after each earnings of 10-15 points.

 (Vol charts courtesy of LiveVol.com)


MY VIEW: With the stock near 12 year highs obviously doesn’t leave a ton of room for disappointment…..even with some of the weak unit numbers we have seen from RIMM and NOK in the last month, many feel that Samsung‘s strong results and what will certainly be better than expected from AAPL should off-set any NOK related weakness for QCOM.  Analysts and Investors a like are convinced that QCOM is the single best way to play smartphone and tablet adoption and then also the upgrade cycle to 4G LTE.

Near-term though I do believe that Upside is limited, and while many analyst feel that a strong fiscal Q2 is all but certain given intro of iPad in the quarter, any disappointment on what could be a seasonally slow Q3 on the guidance front could cause investors to take pause.

Long Holders Could consider Stock Replacement in the form of May Call Spreads and avoid any significant downside volatility.  Remember when SNDK pre-announced negatively on Apr 3rd, stock has been down almost every day since and is down about 18%.

[caption id="attachment_10704" align="aligncenter" width="300" caption="15 day SNDK chart from Bloomberg"][/caption]

Selling your long and Buying a May 70 call for about 1.10 (stock ref $67.30) could be the way to go, define your risk with a break-even level at or about the implied move.  I DON’T HAVE STRONG CONVICTION AND IF THE STOCK SELLS OFF ON CAUTIOUS GUIDANCE, I WOULD EXPECT WEAKNESS TO BE MET WITH BUYERS IN FRONT OF IMPENDING SMART-PHONE AND TABLET LAUNCHES FROM AAPL AND SAMSUNG IN THE SECOND HALF OF THE YEAR.

April 18 (Bloomberg) — Qualcomm to report 2Q today post-mkt:

• 2Q adj. EPS est. 96c (range 91c-99c)
• 2Q rev. est. $4.8b ($4.6b-$5b)
• Forecast 2Q MSM shipments ~146m-154m on Feb. 1
• Forecast 2Q reported device sales by licensees $47.5b-$51.5b
• 3Q adj. EPS est. 89c (83c-99c)
• 3Q rev. est. $4.8b ($4.6b-$5.1b)
• Forecast FY12 3G/4G device ASP $204-$216
• Forecast FY12 adj. EPS $3.55-$3.75, est. $3.78 ($3.65-$4)
• Forecast 3G/4G device shipments to 875m-945m in calendar 2012
• Sees FY12 rev. $18.7b-$19.7b, est. $19.5b ($19b-$20.5b)

• Likely to report inline or better 2Q rev., EPS near high-end of forecast as 3G device ASPs, chipset ASPs likely benefit from LTE device ramp in next 6 mos.; QCOM likely to boost annual forecast: Morgan Stanley (April 15)
• 3Q LTE, smartphone upside possible; focus areas include March qtr 3G market value forecast, QCT margins, MSM8960 traction, connectivity, iPad LTE content, Windows on ARM commentary: Bernstein (April 17)
• Barclays boosted 2Q, 3Q MSM unit ests to 152m from 150m and 156m from 152m on strong LTE demand, early 8960 shipments (April 5)

• QCOM has beaten adj. EPS, sales last 8 qtrs, shrs have risen day after reporting 6 of last 8 qtrs
• QCOM 38 buys, 6 holds, 2 sells, avg. PT $72: Bloomberg data
• QCOM up 22% YTD vs SPX up 10%

• QCOM reported at 4pm last 4 qtrs
• Call 4:45pm http://bit.ly/HSVEmn