Qualcomm (QCOM) is down sharply for the year — and the stock’s sluggishness stands in sharp contrast to improving sentiment for the company’s growth prospects, observes Rich Moroney, editor of Dow Theory Forecasts.

Analyst estimates for the June quarter have steadily risen over the past 60 days but still leave room for upside. The consensus calls for earnings per share to climb 50%, straddled by Qualcomm’s guidance of 43% to 54% growth. Analysts target 36% higher sales, versus management’s growth forecast of 31% to 41%.

In late April, Qualcomm said its smartphone revenue is on pace to grow more than 50% for fiscal 2022 ending September — even though the overall smartphone market could hold flat or decline in the calendar year.

One reason for that optimism is Qualcomm’s massive content gains in Samsung‘s Galaxy smartphone. The company now has a 75% share of the premium tier processor volume for the Galaxy S22 device, up from 40% for its predecessor model.

Qualcomm also notes that China is weak but comprises just 20% of the global smartphone market. While sales for cheaper smartphones in Europe have weakened, global demand for high-end smartphones remains strong.

Perhaps the biggest risk facing Qualcomm is Apple’s gradual transition toward designing its own components. Apple is projected to account for 4% of Qualcomm’s revenue by fiscal 2024, down from more than 10% last year.

But a spurt of new contracts with automakers in the past year should help Qualcomm increase its toehold in the high-growth market of automotive technology. Management expects automotive revenue to reach $10 billion in 10 years, up from its current $1 billion.

Qualcomm shares trade at just 11 times estimated current-year earnings, below the median of 16 for semiconductor stocks in the S&P 1500 Index.

A Quadrix stalwart, Qualcomm scores 70 or higher for six of seven categories, contributing to an Overall rank of 94. Both sector-specific scores exceed 90. Qualcomm is a Focus List Buy.

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