- Qualcomm will benefit from its new Snapdragon 820 processor which is capable of supporting immersive VR experiences.
- Qualcomm stock is also very attractive right now due to the generous dividend payment.
- The average target price of the top analysts is at $59.50. However, in my opinion, shares could go even higher.
No doubt, Virtual Reality (VR) is the hottest trend in technology these days, and all the tech giants are working hard to develop new applications in this futuristic field while estimates suggest that VR will hit revenues between $30 billion to $150 billion by 2020. As such, Qualcomm (NASDAQ:QCOM) will benefit from its new Snapdragon 820 processor which it launched at the Mobile World Congress trade show held from February 22–25, 2016.
According to Qualcomm, advanced heterogeneous processors like the Snapdragon 820 processor are capable of supporting immersive VR experiences, but can also be difficult to utilize fully without the right set of tools for developers. Hence, on March 14, Qualcomm announced that it has introduced a new virtual reality software development kit. The company explained that the next generation of mobile virtual reality applications is complex, with extreme power consumption constraints and challenging performance requirements that must be met for the VR applications to become truly immersive.
What's more, Samsung will use the 820 chip in its high-end Galaxy S7 series versions built for the United States, China, and Japan. As I see it, it is a crucial development for Qualcomm getting orders back from Samsung after losing the account in 2015. Qualcomm failed to win the apps processor socket in Galaxy S6 because its apps processor at the time, Snapdragon 810, had overheating issues.
In my opinion, U.S. government's ban on doing business with the Chinese low-end smartphone manufacturer ZTE would have only minor effect on Qualcomm since ZTE accounts for only about 2% of Qualcomm's revenue.
Qualcomm's stock is also very attractive right now due to the generous dividend payment. On March 08, the company raised its quarterly cash dividend by 10% from $0.48 to $0.53 per share. The last dividend hike represented the 14th consecutive year that Qualcomm has increased its dividend. The forward annual dividend yield is pretty high at 4.22%, and the payout ratio is at 60.8%.
The current yield is historically high, which indicates that the stock is undervalued, according to some dividend assessment theories. The annual rate of dividend growth over the past three years was very high at 24.6%, over the past five years was also very high at 20.1%, and over the last ten years was high at 18.9%. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors, and Qualcomm's performance has been excellent in this respect.
Since the beginning of the year, Qualcomm's stock is up 2% while the S&P 500 Index is up only 0.7%, and the Nasdaq Composite Index has lost 2.7%. However, since the beginning of 2012, Qualcomm's stock has lost 8.2%. In this period, the S&P 500 Index has increased 62%, and the Nasdaq Composite Index has risen 83%. According to TipRanks, the average target price of the top analysts is at $59.50, an upside of 18.5% from its March 28 close price, however, in my opinion, shares could go even higher.
Qualcomm's valuation metrics are very good. The trailing P/E is at 16.62, the forward P/E is very low at 10.52, and the current ratio is very high at 3.10. Furthermore, its Enterprise Value/EBITDA ratio is low at 8.78, and its PEG ratio is also low at 1.02.
In addition, most of Qualcomm's Margins and Return on Capital parameters have been much better than its industry median, its sector median and the S&P 500 median as shown in the tables below.
In my view, Qualcomm will benefit from its new Snapdragon 820 processor which is capable of supporting immersive VR experiences. Also, the fact that Samsung will use the 820 chip in some of its high-end Galaxy S7 series versions is a very positive development for the company. Qualcomm stock is also very attractive right now due to the generous dividend payment, yielding 4.22%. The average target price of the top analysts is at $59.50, implying an upside of 18.5% from its March 28 close price. However, in my opinion, shares could go even higher.