We reiterate our Buy recommendation and the same valuation target for Qualcomm (QCOM), the largest developer of digital wireless chipsets based on CDMA technology, following the company's second quarter fiscal 2008 financial results (ended March). As further support to our rating, the company raised its financial outlook for full fiscal year 2008, despite facing a weak U.S. economy.
Qualcomm's fundamentals remain compelling as robust growth in the 3G wireless handset market (for both WCDMA and CDMA 2000 technology) are driving healthy product sales. Multiple WCDMA operators have adopted Qualcomm's BREW technology. In addition, design wins for Gobi mobile Internet solutions and the Snapdragon chipset platforms, along with major customer agreements for Firethorn financial mobility solutions and continuous network deployments of MediaFLO USA, are indicative of Qualcomm's long-term growth prospects.
The shares are trading at 23.5x our estimated earnings for fiscal 2008, which represent a premium to both the S&P 500 and the industry group averages. However, after adjusting for the $6.43 per diluted share net cash and marketable securities (at the end of the second quarter of fiscal 2008), Qualcomm is trading at 20.05x to our forward 2008 earnings. We expect Qualcomm to benefit from continued strength in cellular handset demand and new 3G wireless rollouts based on CDMA EV-DO and WCDMA technologies. We also believe the company's royalty rates should withstand contract challenges.
The company's investment in new areas that leverage mobile media, data access cards, financial mobility, and next-generation multimedia combination chipset technologies, are also expected to endorse future shareholder payout in the form of increasing earnings and dividends. We, therefore, maintain our six-month target price of $50, which is based on a net of cash multiple of 23.0x to our estimated 2008 earnings plus $6.43 per share net cash balance.
Read the full analyst report on QCOM.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.