Opportunity After Earnings Season: Qualcomm vs. Intel vs. AMD

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Earnings season is still going strong, but we now have seen roughly 80% of the earnings from S&P 500 components. 24/7 Wall St. wanted to see which companies are looking the best or worst now that the earnings reactions have been seen. The first such review is in chip leaders, on the processor side of the equation. These are reviews of Qualcomm Inc. (NASDAQ: QCOM), Intel Corp. (NASDAQ: INTC) and Advanced Micro Devices Inc. (NYSE: AMD).

It turns out that there is some value left, and there is a little bit of something for everyone. The issue is that the forward earnings valuations aim to smooth out the horizon, with a look at the companies today based on next year’s earnings estimates.

Qualcomm Inc. (NASDAQ: QCOM) has a price-to-book value of 3.48 to 1, with a market cap of $134.5 billion, ranking it as the highest among these companies. Its forward price-to-earnings (P/E) ratio is about 13.8. With a consensus target price of $84.84 from Thomson Reuters, Qualcomm has an implied upside exceeding 7.4%. In Friday’s trading Qualcomm’s shares closed at $78.99, and the 52-week price range is $59.02 to $81.66. The mobile chip leader is now larger than Intel in market cap, so if you like Qualcomm it better be for its future dominance of mobile rather than for Intel in PCs. That $84.84 price target would be an all-time high.

Intel Corp. (NASDAQ: INTC) has a book-to-value ratio of 2.26 to 1. The leader in processors for PCs and servers has a market cap of $130.57 billion. Intel’s forward P/E is down to almost 13. Its consensus target price is $26.83, and Intel had an implied upside of only about 1.6% prior to Monday’s drop. Intel shares closed at $26.41 on Friday, and shares were down at $26.20 on Monday. Its 52-week trading range is $21.89 to $27.24.

Where Intel leads is in the dividend, with a 3.4% yield, versus 2.1% for Qualcomm. Intel also screens better on revenue multiples by far, but that is because of a lack of growth and a reliance on PCs and servers. Qualcomm has a big lead in mobile chips for smartphones and tablets, and our take to date is that Intel just isn’t making the necessary headway in the mobile space that the world is moving to.

Advanced Micro Devices Inc. (NYSE: AMD) remains the wild card in processors. It is a turnaround story, but one that is misunderstood by many traditional investors and analysts alike. AMD may still be low-end PC story and a server story for processors, but the graphics side of the business is the real opportunity here. It won both the Xbox One and PS4 chipset designs over Intel and NVIDIA. It is mostly this graphics segment that was why AMD was picked as a stock that could potentially double in 2014, a thesis which remains intact today. The earnings analysis is bright for AMD.

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AMD screens out with a much higher price-to-book value of 6.14 to 1. Again, it is a turnaround, and AMD trades at a deep discount to sales of 0.5 times (versus 2.5 times for Intel and 5 times for Qualcomm). AMD’s market cap is almost $3.2 billion, which seems microscopic in comparison to either Intel or to Qualcomm. Its forward P/E is about 18, but that is almost 22 times this year’s earnings expectations. With a consensus target price of $4.12 from Thomson Reuters, AMD has no analyst upside on the surface. We think that is because it is misunderstood by many who cover it. The 52-week range is $3.04 to $4.65.

The long and short of the matter is that there is a little something for everyone here. For analyst upside, Qualcomm looks the best. For dividends, Intel is a hands down winner. For turnaround upside, AMD remains a stock that could double by our take, but keep in mind that the “double” price would really be $6.96 because the stock was at $3.48 when we named it as a double candidate, versus $4.12 on Monday.