Qualcomm (QCOM): Attractive Risk/Reward at Play? Top Analyst Weighs In

RBC Capital's Amit Daryanani anticipates additional earnings power lies in QCOM's pocket for the following reasons:


Top analyst Amit Daryanani at RBC Capital is out with a thorough analysis into Qualcomm (NASDAQ:QCOM), betting that a slew of issues of issues have good odds to reach resolution by the close of 2018.

As such, the analyst reiterates an Outperform rating on QCOM stock with a $70 price target, which implies a close to 28% upside from current levels.

First, Daryanani sees the chip giant on trajectory to surpass $6.00 in EPS power by next year, with tailwinds including: 1) an NXPI acquisition or stock buyback that could bring an extra roughly $1.30 to $1.50 in EPS to the company’s table; 2) a resolution with Apple and dispute with an OEM, potentially Huawei that could translate to an additional $0.85 to $1.05 to QCOM’s EPS 3) opportunity to choose a back baseband allocation following the resolution with Apple that could yield roughly 5 to 10 cents 4) a cost-cutting initiative to the tune of $1 billion, pointing to a roughly 25 to 35 cent bump coupled with the normalization of litigation expenses, worth another roughly 25 to 35 cents.

Bottom line, “We think QCOM is an attractive large-cap value name trading at sub-9x potential FY19 EPS and we see risk/ reward as $42 downside/ $85 upside, with a 4.7% yield. While we view management’s $6.75-7.50 EPS target for FY19 as optimistic, we do see a reasonable scenario whereby they could potentially achieve ~ $6.00+ EPS by FY19. While we understand the sub-optimal execution at QCOM historically, much of what is required to achieve $6.00+ EPS narrative by FY19 should occur with or without good execution (NXPI and/or buybacks, AAPL resolution). July 25th is a key date for the NXPI transaction – if there is no MOFCOM approval, we think QCOM walks away from the deal ($25-30B buybacks? and QCOM just announced a new $10B buyback authorization). Net/Net: We see higher probability that OEMs under dispute could settle sooner now that it’s clear QCOM isn’t going anywhere. Furthermore, should we get more discipline and consistent execution, the stock should see a sustained multiple expansion,” Daryanani contends.

Amit Daryanani has a very good TipRanks score with an 84% success rate and one of the best rankings on Wall Street: #12 out of 4,793 analysts. Daryanani garners 27.6% in his annual returns. However, when recommending QCOM, Daryanani forfeits 14.3% in average profits on the stock.

TipRanks indicates QCOM has magnetized some healthy positive sentiment on the Street. Out of 13 analysts polled in the last 3 months, 6 are bullish on QCOM, 6 remain sidelined, while 1 is bearish on the stock. With a return potential of 14%, the stock’s consensus target price stands at $62.90.

 

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