We expect Qualcomm to benefit from continued strength in cellular handset demand and new 3G wireless rollouts based on CDMA EV-DO and WCDMA technologies. We also believe the company's royalty rates should withstand contract challenges. The company's investment in new areas that leverage mobile media, data access cards, financial mobility, and next-generation multimedia combination chipset technologies, are also expected to endorse future shareholder payout in the form of increasing earnings and dividends.
Qualcomm shares are trading at 25.8x our estimated earnings for fiscal 2008, which represent a premium to both the S&P 500 and the industry group averages. However, after adjusting for the $6.43 per diluted share net cash and marketable securities, Qualcomm is trading at 22.45x to our forward 2008 earnings. We, therefore, raise our six-month target price of $55, which is based on a net of cash multiple of 25x to our estimated 2008 earnings plus $6.43 per share net cash balance.
Nalak Das contributed to this report.
PMI Numbers Continue Declining
PMI Group's (PMI) first-quarter net operating loss of $3.37 per diluted share was substantially worse than the estimates. The results suffered from increased losses in the U.S. Mortgage Insurance Operations and the impairment of PMI's investment in FGIC, which more than offset the higher net income from International Operations.
PMI's combined ratio worsened significantly while the claim rates and average claim sizes increased considerably. We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies. Hence, our Sell rating on the shares remains unchanged.
We have further reduced our FY08 and FY09 estimates to a negative $6.42 per share and $0.10 per share, respectively. At current levels, shares of PMI trade at 0.16x PMI's 1Q08 book value of $27.58 per share, which is significantly below its historical 2.2x high. Our six-month target price of $3.75 per share incorporates a multiple of 0.14x our projected book value of $26.50 per share for September 30, 2008.
RAIT Fights Tough REIT Market
RAIT Financial Trust (RAS) reported good first-quarter results, with adjusted EPS coming in at $0.52 per share, up about 10% from last quarter. RAS continues to pay off repurchase lines and the company's commercial and residential loans still have low overall delinquencies. Due to the high yield and what we feel is a slightly improving outlook for credit markets, we have upgraded our recommendation to Hold.
Although, with a slumping economy, commercial real estate owners and lenders will face stress throughout the year. Additionally, CDO markets are still shut off and the company will have a difficult time accessing capital throughout 2008. With fewer originations, a dividend cut is probable in the coming quarters.
The company currently trades at 5.5x our recently raised 2008 EPS estimates, slightly above sector averages. Hold the shares for the yield, but expect some type of cut in the future as the current payout is probably unsustainable due to the lack of available financing and reduced deal flow. We are setting our price target at $9.00 per share or approximately 5.5x 2008 EPS estimates.
Target $6 on Ford Shares
Ford Motor Co.'s (F) 'Way Forward' plan undertaken to restore the profitability of the North American automotive business, its new products, profitable financial services business, and cost reduction efforts are some of its potential positives.
However, rising gas prices is affecting the company's operations. Ford dropped its plans of becoming profitable by 2009 due to difficult operating environment. Hence, we reiterate our Hold recommendation and set a six-month target price of $6.00.
Ford will adopt lean and flexible manufacturing capacity utilization that will result in the closure of 16 facilities by 2012, reduce capacity by 10-15% by the end of 2008. The company plans to cut up to 12% of its salaried staff by August 2008. Ford's international profits are improving.
Despite the presence of these factors, Ford's prospects are clouded by the loss of market share, high costs, labor problems and product launches. We expect North American vehicle sales to be down compared to last year.
