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QUALCOMM (QCOM): What Would a MOFCOM Refiling Spell Out for the NXPI Deal? Top Analyst Weighs In

Amit Daryanani understands the complexity of the China situation for QCOM, noting that with or without closing NXP, he sticks with the bulls.


Yesterday, the rumor mill was churning buzz that QUALCOMM, Inc. (NASDAQ:QCOM) has opted to pull and refile with the Ministry of Commerce of the People’s Republic of China (MOFCOM) to buy out NXPI. Dealreporter notes that MOFCOM’s current review wraps up in the next four days. Should MOFCOM accept this refiling, top analyst Amit Daryanani at RBC Capital says this would “restart the clock” and extend the review process.

In other words, though the acquisition of NXPI may seem “so close,” it still lingers quite “far away,” comments Daryanani, who understands the backdrop in China continues to be complex.

That said, the analyst continues to bet on the chip giant, commending the risk/reward profile here as “attractive.” Daryanani reiterates an Outperform rating on QCOM stock with an $80 price target, which implies a healthy 41% upside from current levels.

“We think the situation in China remains opaque, and could be complicated by the ongoing trade tension between U.S. and China. We believe a potential refiling with MOFCOM could indicate MOFCOM looking for more concessions, which could dilute the $1.50 accretion from the NXPI transaction. At the same time, we also note April 25th marks the second automatic extension of the original NXP purchase agreement, and at this point, we don’t think there is another automatic extension after it,” explains the analyst.

What will QCOM’s ‘plan B’ turn to should the ideal option of closing the NXP acquisition not come to pass? The analyst notes that odds are the giant will repatriate the cash and opt for stock buybacks, with Daryanani betting the size to scale between roughly $20 to $25 billion. This would offer a comparable level of EPS accretion for QCOM shareholders, as far as the analyst calculates- even though he continues to see closing the acquisition as Qualcomm’s “preference.”

“In its recent filing, QCOM disclosed its FY19 annual cash incentive plan, which benchmarks the funding rate against its FY19 EPS target of $6.75-7.50. Funding rate would be 200% if adjusted FY19 EPS reaches $7.50 and above, 100% if adjusted EPS reaches $6.75, and 0% if adjusted EPS is below $5.25. We think the incentive plan implies QCOM’s confidence in reaching its FY19 EPS target and should provide investors incremental comfort around the name,” continues the analyst.

Bottom line remains bullish for Daryanani, who contends: “We are sticking with our OP rating driven by our belief that 2-3 catalysts are in the horizon – AAPL settlement, NXPI close or material buyback and Huawei resolution.”

Amit Daryanani has a very good TipRanks score with an 87% success rate and a high ranking of #11 out of 4,771 analysts. Daryanani garners 28.5% in his annual returns. However, when recommending QCOM, Daryanani forfeits 11.0% in average profits on the stock.

TipRanks showcases this chip giant as a stock the bulls like on Wall Street. Out of 16 analysts polled in the last 3 months, 8 rate a Buy on QCOM stock, 7 maintain a Hold, while just 1 issues a Sell. Notably, the 12-month average price target stands at $68.33, marking a nearly 24% upside potential from where the stock is currently trading.