I was pumped on Qualcomm (NASDAQ: QCOM) as soon as I heard Apple (NASDAQ: AAPL) settlement. My numbers had been under the street for the June quarter before Apple news. With Apple, even though it's back in the sales mix, my earning income should have been filled. But when Qualcomm actually reported earnings, Apple did not help guide.
Think of it for a second. Apple did not help Qualcomm to guide higher than the street. You've just won the Apple business and didn't it help you beat Street's guide? Something's up.
We recently took Qualcomm for a strong purchase on our service as soon as we heard Apple settlement. $ 2 in extra income would be great. But when the company finally reported and pointed out that $ 2 is coming in 2021, it wasn't good and we went back to the sidelines.
That and the weak guide made me want to make a quick profit. Something is not entirely here.
When we went to Strong Buy on April 16 (paywall), this said what we said,
"That's the main reason I didn't have a problem saying Buy when the stock was already up Apple news lifted one Big killing of revenue and turning it into an EPS driver. Apple is everyone's biggest customer and will soon become Qualcomm. Add 5G and you have great reason why the stock can continue to increase.
Earnings potential is what drives stock prices I think EPS is about to explode to the upside in 2020, and the market (I think) just started to adapt to it today.
Moved to strong purchases. "
When the company announced the settlement they posted This presentation said the following:
Sounds incredible, right?
We had been $ .15 under the street for the June quarter. One of our rules is that if our EPS is under the street, we cannot recommend the stock. It kept us out.
But then Qualcomm announced an additional $ 2.00 in earnings that potentially solved our disadvantage.
Before we saw the extra $ 2.00 we already come with EPS more than twice in the street $ 5.00 + for 2020. That's what we were happy to begin with because of the 5G ramp. But our June Miss held us back to Apple News, which should have resolved in the lower June quarter.
So the profits
But when the earnings came out and guide missed the street for the June quarter, even with Apple now in the sales mix, we were underwhelmed.
This is what we said when the proceeds came out May 1 (paywall),
"I was underwhelmed.
There was weak up in the quarter but a weak guide. They had great benefit of adding Apple and it was compensated by the end-of-market security. It's not that tempting.
Their $ 2 advantage is through to 2021, so we have time to do so.
We were neutral in front of Apple news because of the end market failure. to Strong Buy on Apple News and saw a big fast move while it was 10% .It was a 2-week 25% flux. 19659010] Part of that move was that 5G should be huge and having Apple back is So big + big should be equal to Oh, my Wow, Righ t Simple math.
So why don't they shoot away numbers if it's so big. You have to ask yourself.
The company said they think it's a break before the 5G ramp. I think so, but only partially. Consumers are waiting for 5G? Maybe.
So we have some time … …
It plays out, but in my experience it is never slower than expected. So, you ask, Chaim do you still have your required wow for a strong buy? Good question. "
We recommended subscribers to reduce job sizes after the quarter.
In addition to our Strong Buys not having quarterly inconvenience, another requirement is that we must say an honest" wow. "I recommend it for your process. is a wonderful boy check. How much do I love it? Is it a wow?
After that quarter and downside guide even Apple was added to the mix, it was "wow" hard to obey, as you can imagine.
I admit that wow is a non-scientific test, but it works and helps me to stay out of trouble The good thing is that I don't think the wow test can ever be found out of any AI machine You don't need a PhD, but I think it's a wonderful check.
I just couldn't say "wow."
May 19, 19459006
After doing more work , here's what was our takeaway (paywall) that took us back to the sidelines:
"After the just reported quarter t my numbers came down. What takes my numbers further is that I think, now that Apple has solved, the buy-back level can go down by 2020. Buybacks helped my numbers by a lot.
Another criterion is that we need "wow" for a Strong Buy Rating. I thought we would get a wow with Apple now in the numbers. Apple didn't act much like a bump in the guide, and if anything just refurbished under the street guide.
This means that the benefits of Apple were more than offset by the weakness of the end market demand. It takes a wow from me.
That market demanding weakness can last at least until the holiday season when 5G will start sprinkling. But it may be now. I don't see sitting through worse numbers before then. That's not my thing.
As far as the 5G ramp takes it time. I think it will be more stretched than I originally expected.
You have several tier phones that need to be upgraded – premium, high end, mid and low-end. It sounds like premiums will be upgraded first, then one of four categories. That ramp takes three years. The other levels will be offset by the premium launch late calendar year.
Qualcomm has 18 months lead times as well. Meaning they are not designed for Apple much for this year. New winnings will take 18 months or by vacation 2020. The $ 2.00 extra that Qualcomm announced from the Apple winner is likely to fully benefit from fiscal 2021 when 18-month design cycles begin to affect numbers. So we have time.
So we have a good dissertation, but some are waiting, lower numbers, slower markets and less potential buybacks. All this after a big fast run.
The file jumped 20% -30% for us in short order. Based on my numbers, the shares have now taken us closer to real value now, as my EPS is closer to $ 6.00 for 2020.
Finally, the Street EPS numbers have jumped and now our EPS numbers are under the street. I have our main criteria saying that we must be on the sidelines.
Again for a strong purchase assessment we need.
1. 45% excess potential. We don't have it now.
2. Our quarters across the street. We don't have it now.
3. "Wow". We do not have to slow down trends.
… for now I have no confidence in the quarter that is giving the decline in China, and generally as consumers push out purchases waiting for 5G. Most importantly, we no longer have the 12-month upside that is needed for a strong purchase assessment after the start-up. "
While the street was upgraded, the stock price was upheld, I thought the quarter was a downturn. I am a big believer in my EPS stock prices. My EPS came down to earth because I think Apple and the 5G building should take longer time.
We now also have a large six month period before we begin to see the benefits of 5G And it is very possible that the 5G ramp is gradual through 2020.
] Everything is now possible. Qualcomm on the earnings call owed a slowdown in customers waiting for 5G, take six months or more.
But add that escalation of the commercial war.
You don't have Trump and Xi meet until the end of June on G20.
If anything this trade war has a chance to squeeze out 5G rollovers.The Huawei is shut down by the United States and being a big 5G vendor can slow this construction
Qualcomm had expected China to be one of those first to roll out 5G after being a lagga rd with 4G rollout.
This commercial war can change the ramp and thus add risk to the story.
After a few years in the business I have learned to keep things simple. Sounds good is good. Sounds good not good. Beating is good. Guiding down is not good. Decline is not good. Disappointed is not good. I'm not trying to think about things. Qualcomm's earnings report was a downturn. It took away my "wow" but gave us a chance to get out after a quick run and avoid this big downhill. I guess there is still risk.
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