Shares of Qualcomm (QCOM) tumbled over 10% this week, after the wireless giant offered a weak revenue guidance for its current fiscal quarter. The lackluster guidance was largely the result of QCOM’s ongoing litigation with Apple, while recent China strength shows signs of teetering. Specifically, fiscal Q1 revenues of $4.9 billion at the midpoint was well below Street estimates of $5.6 billion. To the company’s credit, it released September quarter results that were better-than-expected.
In reaction, BMO’s top analyst Tim Long maintains a Market Perform rating on QCOM, while lowering the price target from $64 to $60.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Tim Long has a yearly average return of 20.6% and a 68% success rate. Long has a 8.4% average loss when recommending QCOM, and is ranked #92 out of 4,887 analysts.
Long comments, “Guide was lackluster for the December quarter as QCOM will not supply into the new line of iPhones, as largely speculated. Royalties were about in line with guidance, and slightly better than our model. Revenue guidance is a big miss based on QCT. EPS guidance is above our estimate, but after taking out a one-time tax benefit, it is a big miss as well. We estimate operating income will decline by 36% Y/Y in the December quarter.”
“We have known that AAPL’s ODM not paying royalties is having a material impact on the royalty business. QCOM’s lack of participation in the new iPhone line-up is confirmed, which leads to a much lower Dec MSM than expected. We believe losing AAPL is leading to a 500 bps market share loss for QCOM in FY 2019. We do not see any signs of a resolution of the legal battles with AAPL, which likely means QTL and QCT revenues stay depressed for some time,” the analyst continued.
Long is lowering his FY2019 EPS to $3.66 from $4.10 and establishing a FY2020 EPS estimate of $4.00.
Qualcomm bought $21 billion of stock in the quarter and while the company has about $9 billion left on its program, Long says the pace is going to slow since the company is newly in a position of net debt. Long’s FY2019 operating income estimates are down 16% from his previous model as a result.
Not every analyst is doubting Qualcomm as much as Long. TipRanks surveyed 14 analysts in the last three months and found that 10 are bullish and 6 are sidelined. The consensus price target is $73, showing nearly 24% upside from where the stock currently stands. (See QCOM’s price targets and analyst ratings on TipRanks)