Qualcomm, Inc. (NASDAQ:QCOM) disclosed today that Apple Inc. (NASDAQ:AAPL) is withholding all equivalent royalty payments to their contract manufacturers and subsequently lowered its C2Q17 revenue and EPS guidance to $5.2 billion and $0.80, respectively, compared to prior $5.7 billion and $1.02 outlook issued on last week’s earnings call.

Reducing Estimates

To account for the total withdrawal of Apple-related royalties, Susquehanna analyst Christopher Rolland has reduced his 2018 EPS from $4.70 to $3.70. However, the analyst believes that Qualcomm clearly has the right to at least a portion of their claimed royalties and that ultimately Apple (or its contract manufacturers) will pay Qualcomm something.

“Given the uncertainty and deeply complicated nature of the lawsuit (and our extremely limited expertise in patent law), we are assuming they will receive 50% of the royalty amount Qualcomm had been expecting. Therefore, Qualcomm could ultimately earn $0.50 more, or $4.20 in 2018 (even perhaps a bit more). When including ~ $1.50 in accretion from NXP, we estimate $5.70 in total EPS, valuing QCOM at ~12.5x EV/ NOPAT ’18 is reasonable in our opinion,” the analyst wrote.

As such, Rolland cuts his price target for QCOM from $63 to $61, while reiterating a Positive rating.

This Scenario Is reflected in the Share Price

Whether or not iPhone-related royalty revenue is recognized by Qualcomm during the dispute, Canaccord’s top analyst Michael Walkley argues, “the share price already assumes materially lower to potentially zero Apple royalty payments in the future and maintain our belief Qualcomm will eventually reach an agreement with Apple. In fact, we believe Qualcomm’s counterclaim to Apple’s lawsuit provides strong arguments for Qualcomm’s long-standing licensing business model. We believe the current share price is assuming some worst-case scenario outcomes that assumes the NXP acquisition does not close and Apple no longer pays royalties to Qualcomm.”

Therefore, Walkley believes Qualcomm is an attractive investment opportunity for longer-term investors during this time of uncertainty, and reiterates a Buy rating with a $70 price target (lowered from $75).

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Walkley has a yearly average return of 20.4% and a 67% success rate. Walkley has a -0.6% average return when recommending QCOM, and is ranked #27 out of 4571 analysts.

Out of the 29 analysts polled by TipRanks in the past 12 months, 12 rate Qualcomm stock a Buy, 16 rate the stock a Hold and 1 recommends to Sell. With a return potential of 24%, the stock’s consensus target price stands at $66.61.