WACC
WESTAMERICA CORP
stock OTC

the WACC/spread logic tracks on paper. the part i find harder to get comfortable with is 'analytics and insights' as a durable moat. triple-net is auditable every quarter. rent coverage, lease term, tenant rating. private capital vintage risk you don't fully see for 5-7 years. O's IR deck will always say 'less risky' but the actual track record on those vehicles doesn't exist yet. proof is 3-4 vintages away.

Hi, this is my 8th grade research project on Qualcomm. *All figures based on FY2025 financials, Q2 FY2026 earnings/transcript, and TTM data. I know, I know "WSB is a casino - put the fries in the bag". But I need someone to rip thesis to shreds if I'm off.*
Qualcomm runs two segments:
* QCT (Qualcomm CDMA Technologies) - the chip division. Designs and sells Snapdragon SoCs for smartphones, automotive, IoT, and increasingly data center. 87% of revenue ($38.4B in FY2025).
* QTL (Qualcomm Technology Licensing) - licenses QCOM's patent portfolio to every manufacturer selling a 3G/4G/5G device on the planet. 13% of revenue ($5.6B) but prints \~72% EBIT margins with minimal capital requirements. It's essentially a toll booth on the global handset market.
# The Setup
QCOM trades at **17x forward earnings** in a semiconductor **peer group with a median closer to 35x**. That discount exists for two reasons:
1. China exposure. Market is worried about tomfoolery around export restrictions and tariffs while China represents \~46% of revenue.
|Region|Revenue FY2025|% Total|YoY|
|:-|:-|:-|:-|
|China|$20.3B|46%|\+14%|
|US|$10.5B|24%|\+9%|
|Korea|$9.5B|22%|\+19%|
2. Apple manufacturing and using its own modem chips for iPhone after using QCOM's since iPhone's release over disputes and lawsuits for the last decade that QCOM charged too much. [Link](https://www.msn.com/en-us/news/technology/after-painful-breakup-qualcomm-tries-to-replace-apple-with-ai/ar-AA22wbBd).
What the market has underpriced is that both headwinds are well-understood, the near-term pain is timing not structure, and two genuine growth vectors - automotive and data center - are accelerating simultaneously.
# Financial History: Recovery From a Brutal Cycle
|FY|Revenue|Net Income|FCF|EPS (GAAP)|
|:-|:-|:-|:-|:-|
|2022|$44.2B|$12.9B|$6.8B|$11.37|
|2023|$35.8B|$7.2B|$9.8B|$6.42|
|2024|$39.0B|$10.1B|$11.2B|$8.97|
|2025|$44.3B|$5.5B\*|$12.8B|$5.01\*|
FY2023 was a post-COVID semiconductor hangover - smartphone demand collapsed, revenue fell 19%. The recovery has been clean: FY2025 revenue matched the FY2022 peak at $44B+, and FCF hit a record $12.8B.
The asterisk on FY2025 earnings is important. Reported net income of $5.5B dramatically understates the business. Operating income was $12.4B - the gap is a $6.1B one-time tax charge in Q4 FY2025 from IRS treatment of capitalized R&D expenses. Q2 FY2026 saw a mirror-image $5.7B non-cash tax benefit for the same reason. Both are excluded from non-GAAP. The operational business runs at roughly $12B annual operating profit and $12.8B FCF. Judge it on those.
# Margins Tell the Real Story
*On a TTM basis:*
|Metric|Value|
|:-|:-|
|Gross Margin|54.8%|
|Operating Margin|25.5%|
|Net Margin (GAAP)|22.3%|
|FCF Margin|18.0%|
|ROE|36.4%|
|ROA|17.4%|
55% gross margins and 36% ROE reflect a business with genuine pricing power - primarily from the licensing business and Snapdragon's dominant position in premium Android.
# The Cheapest Quality Name in Semis
|Metric|QCOM (TTM)|QCOM (Fwd)|Peer Median (Fwd)|
|:-|:-|:-|:-|
|PE|19.8x|17x|\~35x|
|EV/EBITDA|18.6x|\-|\~39x (TTM)|
|P/FCF|24.4x|\-|\~118x (TTM)|
|Div. Yield|1.0%|\-|\~0.3% (TTM)|
The forward PE of 17x uses consensus FY2026 EPS of $10.73 (non-GAAP, adjusted) against $182 share price. For context, NVDA trades at 28x forward on 75% expected revenue growth. ADI at 35x, TXN at 37x, AVGO at 38x - all growing modestly. AMD at 52x. MPWR at 66x
QCOM at 17x is being priced for a structurally impaired business. The data doesn't support that.
# The Two Known Headwinds (And Why They're Bounded)
# 1. Apple Modem Transition
Apple launched the iPhone 16e in early 2025 with its in-house modem, ending QCOM's monopoly on Apple silicon (and launched iPhone Air with new gen C1X modem). The company has a supply agreement through the current year at \~20% share of new iPhones. Beyond that, sell-side models put QCT product revenue from Apple at roughly $2B in FY2027 - down from a higher base but already widely reflected in consensus estimates. The QTL royalty stream (Apple pays to use QCOM's wireless patents regardless of whose modem is in the phone) is a separate negotiation and remains intact at a similar scale pending renegotiation.
The bottom line: the headwind is real, it's roughly $2-3B of QCT revenue at risk, and it's already in the estimate models.
# 2. China / Memory Dynamics
China is 46% of revenue - down from 62% in FY2023 but still the single biggest risk factor. The near-term pain, however, is more nuanced than simple tariff or share-loss fears.
AI data center demand for HBM memory is squeezing memory supply and raising prices. Chinese handset OEMs, facing higher component costs, are deliberately slowing builds and draining channel inventory rather than paying elevated memory prices. QCOM's chip shipments to China are significantly below actual consumer sell-through demand - the phones are still selling, OEMs are just not restocking.
Qualcomm has real-time visibility into this through its QTL licensing data (they see every phone that activates globally). Management during most recent earnings call think Q3 FY2026 as the inventory bottom with sequential growth returning in Q4. So what looks like Chinese demand dwindling very well could be a timing story and not a structural share-loss story.
# What's Actually Growing
# Automotive Is Underappreciated Compounding Machine
|Quarter|Auto Revenue|YoY Growth|
|:-|:-|:-|
|Q2 FY2025|$959M|\+59%|
|Q3 FY2025|$899M|\+68%|
|Q4 FY2025|$961M|\+61%|
|Q1 FY2026|$1.12B|\+61%|
|Q2 FY2026|$1.3B|\+38%|
Annualized run rate crossed $5B in Q2 FY2026 - management guided to exit FY2026 at $6B+. Q3 FY2026 automotive is guided to grow \~50% YoY, an acceleration despite the overall revenue headwinds.
The product transition from cockpit to full digital chassis (cockpit + connectivity + ADAS + autonomy) is what's driving this. Each generation-over-generation upgrade is the largest content-per-vehicle increase in QCOM's history - 3x CPU, 3x GPU, 12x NPU performance in Gen 5 vs Gen 4. BMW ADAS is in production. Bosch and Wave just announced partnerships. The automotive design win pipeline converts to revenue 2-4 years out, which means the orders being won today show up in FY2027-2028 revenue.
At $6B+ and growing 40-50%, automotive is approaching the size of QCOM's entire licensing business.
# IoT Is Getting an AI Tailwind
IoT grew 9% in Q2 FY2026, with industrial and consumer both contributing. The more interesting development: Qualcomm's IQ 10 platform (700 TOPS on-device AI, 18-core CPU) is generating design wins in robotics (Figure AI, Nura), industrial automation, and physical AI applications.
# The New Catalyst Is Data Center
**This is what the market isn't pricing yet**. From the Q2 FY2026 earnings call:
* Custom silicon engagement with a leading hyperscaler, initial shipments December 2026
* Management described it as margin accretive and a multi-generation engagement
* Strategy is both merchant silicon (selling to all comers) and custom ASIC (bespoke chips for specific hyperscalers)
* AlphaWave acquisition adds connectivity IP and custom ASIC execution capability
* Full roadmap reveal at Investor Day, June 24
The thesis is as AI inference scales, the data center disaggregates from monolithic GPU clusters into specialized compute like Google's TPUs or Amazon's Gravitron. Qualcomm's CPU architecture (which already leads on performance/watt in mobile, PC, and auto) translates directly to data center workloads with tight energy requirements. The company has spent years building this quietly. The December shipment is the first public proof point.
None of this is in consensus forward estimates. Analysts are modeling a furthering contracting QCOM (like -10% EPS and revenue growth over the next year). Any credible data center revenue is pure upside.
# Quietly Aggressive Share Buyback
In FY2025, Qualcomm returned $12.6B to shareholders on $12.8B of FCF - essentially all of it:
* $8.8B in buybacks (reducing share count from 1.14B toward \~1.07B)
* $3.8B in dividends (\~1% yield)
Q2 FY2026 alone saw $3.7B returned ($2.8B buybacks + $945M dividends), described as an "acceleration" of the capital return program. The Samsung multi-year deal (>70% Snapdragon share, reaffirmed for this year and next) gives management the revenue visibility to sustain this pace.
# Monte Carlo DCF: Scenario Analysis
*Starting from $12.8B base FCF, 1.072B shares, $195B Market Cap ($182 share price):*
|Scenario|Assumptions|P10 Mkt Cap|Median Mkt Cap|P90 Mkt Cap|P(Undervalued)|
|:-|:-|:-|:-|:-|:-|
|Bear|2% FCF growth, 11% WACC - China structural loss, no data center, Apple gone|$46B|$152B|$430B|40%|
|Base|8% growth, 10% WACC - inventory normalizes, auto grows, data center emerging|$76B|$223B|$565B|56%|
|Bull|15% growth, 9.5% WACC - data center contributes, agentic upgrade cycle, auto $10B+|$113B|$317B|$787B|72%|
|Transformative|22% growth, 9% WACC - platform company across auto + DC + edge AI + 6G|$133B|$455B|$1.29T|81%|
Two things stand out. First, the bear case downside is bounded - even in the worst modeled outcome, the median intrinsic value ($152B) is only 22% below today. A company producing $12.8B in FCF annually doesn't go to zero; the licensing business alone is worth $30-40B in a downside case. Second, the distribution is asymmetric - upside scenarios produce median outcomes 1.6x to 2.3x the current market cap, driven by FCF compounding in automotive and data center.
The bear scenario (40% probability it's undervalued) is the honest admission that risks are real of sustained China tariff escalation, memory-driven demand destruction that outlasts the inventory cycle, or data center execution failure and would all push toward that left tail.
# TL;DR
QCOM is a $195B market cap generating $12.8B in annual FCF - a 6.6% FCF yield - with its two largest headwinds (Apple, China inventory) well-understood, sized, and priced in. The business that remains after those headwinds is growing: automotive at $6B+ and accelerating, IoT expanding into physical AI, and a data center entry that isn't in anyone's model yet. 17x forward earnings against a peer group at 35x, you're being compensated to take on a headline risk that the management says is peaking. The June 24 Investor Day is the catalyst that closes the information gap on the data center opportunity. If QCOM is still trading at a 50% discount to peers in a year, I guess I'm wrong. Price Target $300-400 by end of 2027.
# Positions
$40K in shares @$190 and single 21Aug 220C for investor day
https://preview.redd.it/lawjds8dmjzg1.jpg?width=1206&format=pjpg&auto=webp&s=081f3d01065b98e6b0a54a45a3533fa6a07cf53f

fair critique, and you're right that a hand built DCF will beat ours on any single name. The trade off is depth versus breadth: we run this every day across 4000+ stocks, so case by case isn't an option. However, we have tried to make it as rigorous as possible.

Growth and margin assumptions both come from analyst consensus, so the projection inherits sell side work rather than my guesses.

WACC is CAPM derived from standardized FMP inputs (risk-free rate, ERP, beta, capital structure).

Capex, working capital, and margin assumptions come from the last fiscal year as a baseline.

Users can override any of these inputs on the platform (growth, WACC, margins, period, terminal value) though we use the default inputs for the value algorithm.

Still learning here, but I've been trying to maintain a checklist for myself with these four metrics:
1. Before looking at the price (is it cheap), I look at bankruptcy risk. I use the **Altman Z''-score**, which combines working capital, retained earnings, operating profitability, and equity-to-debt ratios into a single number. Above 2.6 = probably safe, below 1.1 = danger zone, in between = gray area. I use the Z'' version (not the original from 1968 geared towards typical manufacturing companies including a revenue-to-assets ratio), which works better for tech or service businesses, and across sectors in general.
2. Operating margin vs sector median (**margin reversion risk**): If a company has a 35% operating margin and its sector median is 22%, that's a 1.6× premium. The question is: why, and is it durable? If it's a real competitive advantage (network effects, switching costs, regulatory moat), the premium may hold. If it's just a cyclical tailwind or accounting quirk, margins will mean-revert. The "cheap" P/E you're seeing is based on peak margins that won't last. Mauboussin's work at Credit Suisse showed that high margins tend to converge toward sector averages over 5-10 years. So I flag anything over 1.5× sector as "reversion risk."
3. Does the business actually create value? Return on Invested Capital (ROIC) tells you how much profit the company generates for every dollar of capital tied up in the business. If **ROIC > WACC** (weighted average cost of capital), the business creates value. If ROIC < WACC, it's destroying value. A low P/E then just means the market correctly prices in that the company is burning capital. I find this the single best filter for separating "cheap" from "cheap for a reason." A company with a P/E of 8 but ROIC of 4% vs a 10% WACC is not undervalued. It's burning capital at an irresponsible rate.
4. In what direction is the company's performance trend moving (improving or deteriorating)? Using a classic **Piotroski F-Score** here with a 9-point checklist that scores whether profitability, leverage, and operating efficiency are improving or declining year-over-year. (Score of 8-9 = strong improvement. Score of 0-3 = things are getting worse.) I love how the F-Score catches companies that look cheap on P/E but are actively deteriorating: the reason why it was built in the first place by Stanford professor Joseph Piotroski to filter value traps out of high-book-to-market stock screens.
I'm still building my intuition on how to weight these, so learning on the fly from the other comments here as well. For the many here who've been doing this longer than me, what else to add to the list?

My advice is to read books (intelligent investor, little book of valuation, little book that beats the market, one up wall st). If you go on YouTube listen to real investors, Buffett, Lynch, Gayner, etc. Stick to industries you know and understand.
Eventually you will be able to look at a company and know if it’s worth actually doing a deep dive or not very quickly. It doesn’t take a genius to find companies that are trading below 15x FCF and then look into why and if there is mispricing in the market. Or find companies expected to grow at a lower rate than what you see the business actually doing. Or finding a company with an ROIC double its WACC is going to generate positive returns.
These are all simple things made complicated due to lack of knowledge to interpret the fundamental issues causing these numbers and if it’s structural or temporary.
For example a company could be in a cyclical industry/declining FCF so 15x is not cheap. High ROIC doesn’t guarantee future returns if there is increased competition and margin contraction. Or put simply you could be wrong and the company doesn’t grow at the higher rate due to an unforeseen headwind.
If you can separate structural problems from temporary issues that’s your edge.
The final and most important thing about value investing is having discipline, patience, and proper risk management. It’s a marathon not a sprint. Sometimes it just takes one earnings call, other times it takes years for the thesis to play out. And if you don’t know how to manage your risk, you will not be able to stomach the volatility. Companies generally don’t get mispriced because everything is going smoothly, so it’s not going to be a smooth ride back to fair value and beyond.

Been running Genpact through a rigorous screening framework and the numbers are surprisingly compelling for a stock that’s down \~30% from its 52-week high. Wanted to get this community’s perspective before forming a conviction.
The quick numbers (FY2025):
• Revenue: $5.08B (+6.6% YoY)
• Diluted EPS: $3.13 (+9.8%), Adjusted EPS: $3.65 (+11.3%)
• ROIC: \~13.7% vs WACC: \~6.6% (spread of \~+7pp)
• Current ratio: 1.66
• Debt/Equity: 0.23 (down from 1.05 in 2021)
• FCF: \~$566M | Price/FCF: \~10.3x
• Gross margin expanding \~60bps YoY
• Dividend raised 10% to $0.75/share (2.2% yield)
• Q4 beat on both EPS and revenue
The valuation gap:
At \~$34, the stock is trading at \~11x trailing earnings against a 5-year average P/E of \~18-19x. Graham formula gives intrinsic value of \~$48-55 depending on EPS assumptions. Multiple DCF scenarios put fair value at $40-65. Even the most conservative estimates suggest 30-40% upside to fair value.
Genpact is being re-rated as a “BPO” that AI will disrupt, but the company is actively pivoting to AI. Advanced Technology Solutions revenue grew 17% YoY and now accounts for 24% of total revenue. They have $5.5B in new bookings (record backlog), 400+ GenAI solutions deployed, and are shifting from FTE-based contracts to outcome-based models with better margins.
So what do you guys think? Worth picking up?