2 Techs Ready for the Long Haul

03/19/2012 7:15 am EST


Rob DeFrancesco

Founder, Tech-Stock Prospector

Tech might wax and wane but…aside from Apple…there are some strong growth stocks with long legs that are still good values, says Rob DeFrancesco of Tech Stock Prospector.

Last fall, I included Qualcomm (QCOM) as one of the prime beneficiaries of the Mobile Megatrend, because the company is capturing a greater share of the semiconductor market for mobile devices.

Trading around $50 at that time, the stock surged to a new 52-week high in early February following a strong fiscal first-quarter (December) report and bullish fiscal Q2 guidance.

Per-share earnings of 97 cents in fiscal Q1 topped the consensus estimate by seven cents, and revenue of $4.68 billion beat the consensus of $4.58 billion. For fiscal Q2, the company sees EPS of 91 cents to 97 cents (the consensus was 89 cents) on revenue of $4.6 billion to $5 billion, vs. the consensus of $4.51 billion.

The Mobile Megatrend remains in full force. According to IT research firm Gartner, 2011 worldwide smartphone sales jumped 60% to 477 million units. The migration to 3G from 2G remains quite strong in emerging markets. In the December quarter, 3G connections in emerging regions advanced 45% year over year, according to research firm Wireless Intelligence.

In China, it’s estimated that there will be 1 billion mobile connections before the end of March, and 3G will soon account for a quarter of the country’s connections, driven by increased operator subsidies and general availability of smartphones. Now the world’s No. 2 region in terms of sales, China is poised to become the leading consumer of smartphones, predicts Gartner.

Beyond handsets, the proliferation of various new devices (tablets, eReaders, and handheld gaming units) is another growth driver for Qualcomm. Some analysts see non-handset mobile broadband device shipments growing at a CAGR of 40% through 2015.

Goldman Sachs raised its Qualcomm price target to $72 from $65, based on the company’s accelerating earnings growth and share gains. Qualcomm remains a 2012 top pick at Cowen because of acceleration in the migration to 3G/4G and solid pricing trends. ThinkEquity boosted its price target to $85 from $75.

The company reported Q4 EPS of 49 cents, three cents above the consensus estimate, on revenue of $5.57 billion (+14% year over year), vs. the consensus of $5.49 billion.

Within the Information Storage unit, the high-end Symmetrix product portfolio saw revenue growth of 11%, while mid-tier storage products revenue rose 24%. In the Backup Recovery Systems portfolio, the combined annualized revenue run rate for Data Domain and Avamar exceeded $2 billion. Revenue from the Isilon portfolio more than doubled from a year ago.

For 2012, EMC expects revenue of $22 billion and EPS of $1.70, shy of the consensus estimates, but management is being conservative. On the conference call, management reiterated its goal of reaching $28 billion in revenue in 2014.

Brean Murray boosted its EMC price target to $31 from $28, saying the Q4 report showed increased market share in the midrange and improved margins. The firm increased its 2012 EPS estimate by five cents to $1.75, putting it two cents above the consensus estimate.

Needham increased its target to $34 from $32 and Ticonderoga went to $29 from $27. Using the 2012 consensus EPS estimate of $1.73 (14.5% earnings growth) and a PEG of 1.2 generates a forward P/E of 17.4, and a fair-value price target of $30.10.

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