Analysts Hedge Their Bets on QUALCOMM, Inc. (QCOM) and eBay Inc (EBAY)


On the heels of fourth-quarter results reported yesterday, analysts are offering their sidelined takes on two tech giants: QUALCOMM, Inc. (NASDAQ:QCOM) and eBay Inc (NASDAQ:EBAY).

However, whereas one analyst is more critical on Qualcomm and pulls back on the price target amid the chip giant’s fray with Apple Inc. (NASDAQ:AAPL), Wall Street’s top-performing analyst boosts the price target on eBay even as he remains cautious on the company’s long-term prospects.

Let’s take a closer look:

Qualcomm: Share Loss Concerns and Litigation Risks

BMO analyst Tim Long is chiming in with a lukewarm perspective on Qualcomm on back of its fourth-quarter report released yesterday and investors seem to agree, with shares taking a 6% dip today. On the positive side, the chip giant posted upside for the quarter with guidance that mirrored the Street at the midpoint with an “achievable” top range.

However, when looking at risk factors, the analyst takes note of litigation with Apple taking “center stage” as well as higher operating expenses and lower chips sales hurting performance. Therefore, the analyst reiterates a Market Perform rating on shares of QCOM while cutting the price target from $67 to $60, which represents an 11% increase from where the stock is currently trading.

For the fourth quarter, the giant reached revenues of $6.0 billion, just under consensus of $6.1 billion, with an EPS beat of $1.24 outclassing both Long’s projection of $1.15 as well as consensus of $1.18.

Long opines, “Management gave some of its views countering the Apple (AAPL, $121.88, Outperform) claims from last week’s lawsuit. We do agree that AAPL’s end game is to try to lower royalty rates using some common arguments, and QCOM has been adept at defending these. That said, we do see long-term risk to a royalty rate that is 5-10x anyone else’s in the industry. We see overhangs for the stock because of the AAPL, FTC, KFTC, and EU cases. The lack of AAPL ‘rebates’ are not yet flowing through the income statement.”

While Long was proven right about robust royalties leading to a beat, higher opex led to a $0.05 hit followed by lower chip sales subtracting another $0.04.

Furthermore, the analyst notes, “QCOM estimates that it will get paid on total reported device revenue of $74-82 billion for the December quarter with March-quarter MSM shipments to be 165-185 million, lower than our prior estimate of 186 million. We believe the share loss at AAPL, delays for the Galaxy S8, and possibly some inventory correction are to blame.”

“In addition to concerns about secular growth and chipset share losses, we expect shares to remain in a trading range given the legal overhangs,” Long concludes.

Considering the debt from the NXPI deal and cash investments, the analyst raises EPS projections for the financial year of 2017 from $4.60 to $4.38 and for 2018 from $4.70 down to $4.21.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Tim Long is ranked #501 out of 4,378 analysts. Long has a 61% success rate and gains 8.4% in his yearly returns. However, when recommending QCOM, Long loses 8.4% in average profits on the stock.

TipRanks analytics indicate QCOM as a Buy. Out of 21 analysts polled by TipRanks in the last 3 months, 9 are bullish on Qualcomm stock, 11 remain sidelined, and 1 is bearish on the stock. With a return potential of 31%, the stock’s consensus target price stands at $70.88.

eBay’s Mixed 4Q Story

Top analyst Mark Mahaney at RBC Capital, the #1 ranked analyst on Wall Street today acknowledges “stable fundamentals” for eBay after the online auction giant posted its fourth-quarter earnings yesterday after market close, but maintains there is “a long road ahead.” As such, the analyst reiterates a Sector Perform rating on EBAY while raising the price target from $32 to $34, which represents a just under 7% increase from where the shares last closed.

For the fourth quarter, the giant saw a 6% acceleration in ex-FX year-over-year growth in revenue to $2.4 billion, beating both the analyst’s $2.36 projection as well as the Street’s of $2.40 billion. Meanwhile, eBay’s non-GAAP EPS of $0.54 reached just ahead of the analyst’s and the Street’s estimate of $0.53, which he attributes to accelerated revenue on back of a stellar holiday season and more share repos.

Even as eBay shares are rising 5%, Mahaney does not deem the small improvement he assesses in “a few key metrics” as enough to sway him from the sidelines, explaining, “Q1 and FY17 guidance is mixed but does imply modest marketplace volume acceleration vs. FY16, although uncertainty exists.”

“We did see an improvement in arguably the most important part of the EBAY story – U.S. Marketplace GMV (ex-StubHub) – but the acceleration to 2.5% Y/Y growth on an easy comp in a relatively strong online holiday shopping period doesn’t seem thesis-changing impressive to us. Our long-term investment opinion is unchanged. The key investor decision remains whether eBay is a Cash Cow, a Cash Cube (as in the melting kind), or recovering Cash Cougar. Our Sector Perform rating is based on the belief that one of the first two is most likely. We believe eBay will continue to face increasingly powerful headwinds from competition with Amazon, a series of innovative vertical marketplaces, and massive ‘Net platforms (Google, Facebook) with ‘Buy Button’ potential,” Mahaney surmises.

Mark Mahaney has a very impressive TipRanks score with a 73% success rate and a #1 ranking out of 4,378 analysts. Mahaney realizes 21.9% in his annual returns. However, when recommending EBAY, Mahaney loses 4.8% in average profits on the stock.

TipRanks analytics demonstrate EBAY as a Hold. Based on 18 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on EBAY stock, 12 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $33.41, marking a 3% upside from where the stock is currently trading.

Stocks covered by top performing analysts can be found here.

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