While the market has weighed on both Intel and Qualcomm stock, INTC has fallen a whopping 11% whereas QCOM is down just a couple percentage points.
Of course, expectations play a large role. Intel stock has more than doubled QCOM stock over the last five years thanks to a horrible 2015 for Qualcomm. Granted, 2016 has been a different story.
In 2016, Qualcomm stock has risen 33.5% thanks to a faster-than-expected recover from the year prior. Furthermore, Qualcomm has demonstrated margin growth while landing several big deals during 2016. Although ongoing legal trouble with its licensing business is still a risk, investors most certainly see light at the end of the tunnel.
Meanwhile, Intel has successfully navigated from being a full blown PC chip maker to smartphones and internet of things. INTC is now a legitimate competitor to Qualcomm in this arena. So going into third quarter earnings, expectations for Intel stock could not have been higher. Therefore, deciding whether INTC or QCOM is better might seem tough, but we believe there is an easy victor.
QCOM vs INTC
Seeing as how both Intel and Qualcomm have similar business models, and will both gain from a drastic rise in connected things, we believe that the best way to determine a superior investment is to look at the multiples for QCOM stock and INTC stock. Only then can we find a real disconnect between these two companies.
|FY2016 revenue growth||1.4%||6.2%|
|FY2017 revenue growth||2.5%||3.6%|
|FY2017 P/E Ratio||
|(5 yr) Share Reduction||12.7%||5.2%|
As seen, very similar companies. Even with debt-to-asset ratios, almost exactly the same! Qualcomm is slightly cheaper relative to free cash flow, but Intel is expected to grow slightly faster moving forward, and is cheaper on a forward P/E ratio.
That said, there is one major difference, buybacks! Because Qualcomm is willing to buyback so much QCOM stock, its EPS is going to grow faster than Wall Street expects. Furthermore, we think Wall Street may already be underestimating Qualcomm.
If you look at Intel and Qualcomm’s third quarter, respectively, there is a big difference in what each company foresees. Intel is expecting growth, while Qualcomm could have a double digit decline.
Intel stock or Qualcomm stock?
Albeit, Qualcomm has been very aggressive in buying back stock, but now that the stock has risen more than 55% from its low, I doubt those buybacks will continue at such an accelerated rate. Then, you look at what each company has gained and lost over the last year. Qualcomm no longer has the margins it once had in licensing its technology because of pricey suits and settlements. Yes, QCOM signed a licensing deal with Xiaomi late last year, but Xiaomi’s growth has quickly fizzled and Intel has quickly stolen market share in the iPhone.
Collectively, it Intel stock certainly looks like the best. INTC is growing faster, its forward P/E ratio is cheaper, and its business looks healthier. With similar dividends and debt-to-asset ratio, Qualcomm stock’s only advantage is its buybacks. However, we expect those stock buybacks to slow.
Therefore, if you are going to own Qualcomm stock or Intel stock, INTC is the way to go.