Playing the expectation game

Is Qualcomm trying to prop up a sinking share price with its actions?

By Jim J. Jubak Mar 25, 2010 6:18PM

Jim JubakNow I don't wish to sound ungrateful for Thursday's pop in Qualcomm's (QCOM) stock, but I do have to ask: Was this trip necessary?


Thursday, Qualcomm raised its outlook for fiscal second-quarter sales and earnings. The company said it was shipping more chipsets for CDMA cell phones than it had expected.


Expected when? Why, all the way back in January, when the company, after reporting its results for the fiscal first quarter (and badly missing Wall Street estimates), told analysts to expect lower sales and earnings for the fiscal second quarter. That guidance tanked the stock.


In January, Qualcomm cut guidance for second-quarter earnings to 49 cents to 53 cents a share. Sales would fall between $2.4 billion and $2.6 billion.


Thursday's guidance calls for earnings of 56 cents to 58 cents a share on revenue of $2.55 billion to $2.65 billion. 


Between the January reduction of guidance and the March increase, the company announced a hike in its stock dividend and a new stock buy-back program. With many companies, I'd say those actions were a sign of confidence in the future.


Coming so soon after a cut to guidance had sent the stock into a spin, however, those actions strike me as attempts to support a sinking share price. (For more on that dividend increase and the buy-back program, see this post).


The quarter closes on March 31, so you'd think this guidance, delivered just six days before the end of the quarter, is probably accurate. But based on history, I can't be certain.


However, what worries me more is what Wall Street analysts decide to do in the month between today and the company's projected Apr. 27 date for officially reporting earnings. Wall Street has a history of getting overenthusiastic about Qualcomm in the run-up to earnings and then feeling very disappointed afterwards. 


I'd worry, maybe enough to sell, if analysts' estimates start to rise strongly as we get closer to earnings day.


As of March 25, I'm keeping my target price at $44 by May. It closed above $42 Thursday.


At the time of this writing, Jim Jubak owned shares of Qualcomm in his personal portfolio. 

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