Canaccord top analyst Michael Walkley is weighing in on QUALCOMM, Inc. (NASDAQ:QCOM) as the chip maker is currently embroiled in legal battle with the Federal Trade Commission (FTC) as well as with main client, Apple Inc. (NASDAQ:AAPL).
In the U.S. District Court of California, the FTC alleges the chip maker’s business practices have violated U.S. rules of competition. Subsequently, Apple has also entered with a lawsuit contending related complaints against QCOM. Particularly taking into account that it cannot simply be coincidence that the location of the FTC complaint filing circles Apple territory (whose headquarters are in Cupertino, California), Walkley speculates Apple to be the leading company behind the charge.
Discounting the tech giant’s license payments to the chip maker, though the analyst reiterates a Buy rating on shares of QCOM, he reduces the price target from $81 to $75, which represents a just under 34% increase from where the stock is currently trading.
While Walkey predicts odds are that the new FTC commission will not carry out the course of action, with one commissioner in adamant objection against the complaint, QCOM is not all in the clear. Why? The Apple variable. From Walkley’s standpoint, “[…] with the FTC complaint and now Apple’s lawsuit with similar language, it is clear Apple plans a long-term battle with Qualcomm in an attempt to lower royalty payments related to iPhone sales.”
Moreover, the analyst explains, “While Qualcomm management claims the FTC reached its conclusions with flawed logic and untrue information about Qualcomm’s business practices and responded to Apple’s suit with a similar strong stand, we believe the claims and suits are significant and create increased long-term risks to Qualcomm’s QTL division (licensing business).”
Overall, “While the uncertainty could weigh on the share price, we believe the sell-off post the Apple and FTC news more than prices in a worst-case scenario in regard to Apple licensing, and believe Qualcomm combined with the pending NXP acquisition is an attractive investment opportunity during this time of uncertainty,” Walkley concludes.
Michael Walkley has a very good TipRanks score with a 61% success rate and a high ranking of #35 out of 4,372 analysts. Walkley garners 15.6% in his annual returns. When recommending QCOM, Walkley gains 1.9% in average profits on the stock.
TipRanks analytics exhibit 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 32%, the stock’s consensus target price stands at $72.82.
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