Critical Contrast: Arista Networks (ANET) & QUALCOMM (QCOM)

QUALCOMM (NASDAQ: QCOM) and Arista Networks (NYSE:ANET) are both large-cap computer and technology companies, but which is the superior business? We will contrast the two companies based on the strength of their profitabiliy, valuation, earnings, analyst recommendations, risk, institutional ownership and dividends.

Institutional and Insider Ownership

78.0% of QUALCOMM shares are owned by institutional investors. Comparatively, 60.7% of Arista Networks shares are owned by institutional investors. 0.2% of QUALCOMM shares are owned by company insiders. Comparatively, 28.1% of Arista Networks shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Profitability

This table compares QUALCOMM and Arista Networks’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
QUALCOMM 19.25% 21.32% 12.59%
Arista Networks 18.95% 20.94% 13.69%

Dividends

QUALCOMM pays an annual dividend of $2.28 per share and has a dividend yield of 4.0%. Arista Networks does not pay a dividend. QUALCOMM pays out 76.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Arista Networks has increased its dividend for 6 consecutive years.

Earnings and Valuation

This table compares QUALCOMM and Arista Networks’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
QUALCOMM $23.24 billion 3.62 $7.88 billion $3.00 18.97
Arista Networks $1.22 billion 9.54 $287.00 million $3.08 52.47

QUALCOMM has higher revenue and earnings than Arista Networks. QUALCOMM is trading at a lower price-to-earnings ratio than Arista Networks, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for QUALCOMM and Arista Networks, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
QUALCOMM 1 16 13 1 2.45
Arista Networks 0 15 14 0 2.48

QUALCOMM currently has a consensus target price of $64.56, indicating a potential upside of 13.43%. Arista Networks has a consensus target price of $138.48, indicating a potential downside of 14.32%. Given QUALCOMM’s higher probable upside, research analysts clearly believe QUALCOMM is more favorable than Arista Networks.

Risk & Volatility

QUALCOMM has a beta of 1.25, indicating that its share price is 25% more volatile than the S&P 500. Comparatively, Arista Networks has a beta of 1.35, indicating that its share price is 35% more volatile than the S&P 500.

Summary

Arista Networks beats QUALCOMM on 10 of the 18 factors compared between the two stocks.

About QUALCOMM

QUALCOMM Incorporated is engaged in the development and commercialization of a digital communication technology called code division multiple access (CDMA). The Company is engaged in the development and commercialization of the orthogonal frequency division multiple access (OFDMA) family of technologies, including long-term evolution (LTE), which is an Orthogonal Frequency Division Multiplexing (OFDM)-based standard that uses OFDMA and single-carrier Frequency Division Multiple Access (FDMA), for cellular wireless communication applications. The Company’s segments include QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI (Qualcomm Strategic Initiatives). The Company also develops and commercializes a range of other technologies used in handsets and tablets that contribute to end user demand. The Company’s products principally consist of integrated circuits (chips or chipsets) and system software used in mobile devices and in wireless networks.

About Arista Networks

Arista Networks, Inc. is a supplier of cloud networking solutions that use software innovations to address the needs of Internet companies, cloud service providers and data centers for enterprise support. It develops, markets and sells cloud networking solutions, which consist of its Gigabit Ethernet switches and related software. The Company’s cloud networking solutions consist of its Extensible Operating System (EOS), a set of network applications and its Ethernet switching and routing platforms. The programmability of EOS has allowed it to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed it to integrate with a range of third-party applications for virtualization, management, automation, orchestration and network services. EOS supports cloud and virtualization solutions, including VMware NSX, Microsoft System Center and other cloud management frameworks.

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