Qualcomm Shares Could Drop 15% Following Reduced Earnings Projections

(Disclaimer: This fundamental analysis is authored by a financial writer and portfolio manager who holds shares in NXPI.)

Qualcomm Inc. (QCOM) has experienced a challenging start to 2018, with its stock price declining by more than 9%. The situation may worsen as analysts continue to cut their earnings and revenue projections. Technical indicators suggest the stock could decrease by up to 15% in the upcoming weeks.

Over recent months, analysts have significantly lowered their earnings estimates and price targets for Qualcomm. Current forecasts indicate a 23% drop in earnings for 2018, alongside a projected 5.5% decline in revenue. Adding to the uncertainty is the unresolved status of Qualcomm's planned acquisition of NXP Semiconductors N.V. (NXPI), which continues to cloud the company's outlook. (See also: Concerns Mount Over Qualcomm-NXP Deal Impact on NXP Stock)

Data sourced from YCharts

Technical Indicators Signal Downtrend

Technical analysis reveals that Qualcomm's shares may decline approximately 14.5% to reach the next support level at $49.90. The recent upward movement filled a previous technical gap at $62.25, but the stock now appears to be reverting to its earlier downward trend. Furthermore, the relative strength index (RSI) has started to fall after reaching an overbought threshold of 70, indicating weakening momentum.

Reduced Earnings and Revenue Expectations

Analysts have cut their earnings forecasts for Qualcomm's fiscal third quarter of 2018 by nearly 10% over the past month. Earnings per share are now expected to drop nearly 15% year-over-year to $0.71. Revenue projections have also been trimmed by 1.6% during the same period, with an anticipated 1.4% decline year-over-year to $5.2 billion.

EPS data provided by YCharts

The full-year outlook is even more concerning. Qualcomm's 2018 earnings estimates have been reduced by nearly 5%, with expected earnings per share falling over 23% to $3.29. Revenue estimates have been cut by almost 1% in the last month and are projected to decline 5.5% year-over-year to $21.97 billion. This would mark Qualcomm's lowest annual revenue since 2012.

Annual revenue data sourced from YCharts

Price Targets Continue to Decline

Due to the bleak forecast, analysts have further reduced their average price target for Qualcomm stock to $62.74, a significant drop of nearly 13% from the mid-March target of $72.03.

With ongoing downward revisions to expectations, it is understandable why the technical outlook for Qualcomm appears unfavorable.

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment advisor, and manages the Thematic Growth Portfolio, which typically holds stocks for three to five years. For more about Kramer and his portfolio holdings, visit his profile. This information is for educational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investment strategies. Investing involves risk and is not guaranteed. Consult a qualified financial advisor or tax professional before implementing any investment strategies. Upon request, the advisor will provide a list of all recommendations made in the past twelve months. Past performance does not guarantee future results.

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