Wednesday, 03 March 2010 00:13
Qualcomm shares plunged by as much as 24% in late January after the company issued weaker than expected earnings guidance. Earnings estimates were quickly reduced to $2.14 per share for fiscal '10 and $2.45 per share for fiscal '11, representing still very respectable earnings growth of 15%.
After the big drop in share price, we acquired additional QCOM shares and believe they represent considerable value. Qualcomm has approximately $19 billion in cash and marketable securities on its balance sheet and no debt. This represents approximately $11 per QCOM share in cash. Stripping out this substantial cash from Qualcomm's already depressed shares, we arrived at a PE ratio of 12 times '10 earnings and just over 10 times "11 earnings.
Today, Qualcomm shares surged almost 7% on news the company increased its dividend by 12% and initiated a $3 billion stock buyback. In addition, CEO Paul Jacobs told analysts that revenues were tracking at the high end of previous guidance.
For a company with so much cash, buying back stock is a wonderful tool to build shareholder value. Time and time again, we have seen these kind of earnings disappointments followed by the announcement of a substantial stock buyback. Can you say "sandbagger"?