Is Qualcomm, Inc. (QCOM) Stock Worth Considering Ahead Of Q3 Earnings?

QUALCOMM, Inc. (NASDAQ:QCOM) is set to report its Q3 2017 earnings on July 19. Is QCOM stock a good buy ahead of its earnings?

Shares of smartphone chip giant Qualcomm Inc (NASDAQ:QCOM) are still not out of their misery in 2017. Legal issues still haunt the stock and are getting more complex by the day. QCOM stock had another bad month in June losing nearly 6%. In July, the stock has largely traded sideways, but has managed to gain more than 3% from the lows of June. With Qualcomm scheduled to report its earnings for Q3 2017 on 19 July, after market close, has the narrative changed for the chipmaker? Will investors see a turnaround when the company releases its latest earnings? Well, Let’s take a closer look, to know what to expect from Qualcomm’s Q3 2017 earnings.

Qualcomm Earnings – Q3 Analyst Estimates.

The chipmaker managed to post better than expected results in Q2. Qualcomm delivered a beat on both, earnings and revenue estimates for Q2. However, dark clouds linger over the company’s Q3 earnings results. The uncertainty around the Apple suppliers’ royalty payments comes into play this quarter. Given the way things presently stand between Apple (NASDAQ:AAPL) and Qualcomm, investors and analysts don’t expect too much from the chipmaker’s latest earnings.

Coming to analyst estimates for revenue, they expect the company to report a revenue of $5.26 billion, translating to a YoY decrease of 12.7%. This is even below the lower end of the company’s guidance, which ranged from $5.3 billion to $6 billion. Moving on to bottom line numbers, analysts expect the mobile chip giant to bring in 81 cents in non-GAAP Earnings Per Share (EPS), compared to $1.16 for the same quarter last year, representing a massive 30.17% YoY drop in EPS. The company estimated EPS in the third quarter to be in the range of  $0.90 to $1.15 per share. Investors should note that the management’s guidance range does not include the case where no payments are made by Apple suppliers. Also, the third quarter is typically the seasonally weak quarter for the company in terms of both revenues and EPS.

Where is the battle with Apple heading to?

Things have been very complex since the time Apple first filed a law suit against Qualcomm. It got much more complex earlier this month, when the San Diego-based company announced it was suing Apple for patent infringement, and requesting the International Trade Commission to ban the import of the iPhones to the U.S. Right from the beginning it was expected that the legal battle would be long and ugly, but the latest set of events means it could take longer than expected for the Apple-Qualcomm standoff to get resolved. This also further increases the risks pertaining to QCOM stock. The latest turn of events could result in Qualcomm losing its share of iPhone modem supply completely to Intel (NASDAQ:INTC), which would mean a $0.30-$0.35 C18 EPS hit as per Cowen & Co.’s Timothy Arcuri’s estimates. RBC Capital’s Amit Daryanani, who has an Outperform rating on Qualcomm shares notes that the “timing is interesting” given that Apple “should be close to finalizing design and component suppliers for iPhone 8,” implying, perhaps, that Qualcomm anticipates losing further baseband share to Intel, this time around.” Though Stay Rasgon of Bernstein opines that Qualcomm’s latest action doesn’t change anything and this won’t have much impact for the moment.

Playing QCOM stock.

QCOM stock has slowly managed to go past all its key Simple Moving Averages (SMA), be it the 20-day, 50-day and 100-day SMA, after falling below them in June. However, the volumes have been much lower than the average of late. Investors seem to have given up on the stock for the time being. The Moving Average Convergence Divergence (MACD) is also trending upwards, and a bullish crossover in the sessions going into earnings could result in the stock gaining some momentum. Yet, the legal issues still weigh heavily on the stock’s fortunes. Investors should avoid QCOM stock at least till a better outlook is issued by the management. It remains a risky bet in-spite of its cheap valuation and good long-term growth prospects. The progress on the NXP Semiconductor (NASDAQ:NXPI) acquisition front has also been very slow. Any positive announcement on that front could really be a big boost to investor sentiment. The upcoming earnings are less likely to cheer up investors.

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