Qualcomm (QCOM) Q3 Earnings: What's In The Cards?

Qualcomm Inc. (NASDAQ:QCOM) , the largest manufacturer of wireless chipset based on baseband technology in U.S., is scheduled to report its third-quarter fiscal 2016 financial numbers on Jul 20, after market close.

Last quarter, the company posted an impressive 8.54% positive earnings surprise. Moreover, the company’s bottom line has surpassed the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 9.76%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that the company is likely to beat the Zacks Consensus Estimate because it has the right combination of two key ingredients.

Zacks ESP: Qualcomm has an Earnings ESP of +3.61%. This is because the Most Accurate estimate stands at 86 cents while the Zacks Consensus Estimate is pegged at 83 cents. This is meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: Qualcomm has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Qualcomm’s Zacks Rank #2 and +3.61% ESP makes us confident of a earnings beat at the company.

What is Driving the Better-than-Expected Earnings?

Qualcomm, inspite of ruling the global wireless baseband chipset market, is also widening its presence in adjacent markets, including automotive, networking, mobile computing and IoT which bode well for long-term growth. The company is also actively involved in the production of chipsets for the 5G mobile standard and is sharing partnership with U.S. telecom behemoths like Verizon Communications Inc. (NYSE:VZ) and Ericsson (NASDAQ:ERIC) for the same, which may propel growth in the days ahead.

Additionally, Qualcommannounced that it is working with Alphabet (NASDAQ:GOOGL) Inc.’s subsidiary Google to develop and power Android Auto in-car solutions with its Snapdragon automotive processors. Notably, Qualcomm has two Snapdragon system-on-chips designed for the automobile market, namely, the 602A and 820A units. As a follow-up, the company recently launched an upgraded version of Snapdragon 820 - Snapdragon 821, to power the next-generation smartphones and extend the competitive strength of its Snapdragon 800 line-up.

Moreover, signing of new patent license agreements with Chinese smartphone makers should boost Qualcomm’s top line by bringing in additional royalties and solidifying its hold in the Chinese market.

Increased presence in the area of smartphone, especially in emerging countries, is a major tailwind.

Moreover, the Federal Communications Commission (FCC) recently permitted Qualcomm to test its LTE-U (Long-Term Evolution-Unlicensed) equipment on Verizon’s network, which is another positive.

Another Stock to Consider

Here is another company to consider as our model shows that this also has the right combination of elements to post an earnings beat this quarter.

Imprivata Inc. (NYSE:IMPR) has an earnings ESP of +3.85% and a Zacks Rank #1.