News outlets like the Wall Street Journal are buzzing with reports that QUALCOMM, Inc. (NASDAQ:QCOM) is amid discussions to acquire NXP Semiconductors NV (NASDAQ:NXPI) for a projected price that might hit over $30 billion. The semi-conductor giant’s market cap rests above $33 billion, and meanwhile holds an estimated $41 billion in enterprise value.
BMO Capital analyst Tim Long does not offer his opinion as to whether this deal is forthcoming, instead choosing to “provide some thoughts if one were to happen.” Though Long believes this acquisition holds near-term value for the company, the analyst remains bearish on QCOM’s long-term path, reiterating an Underperform rating on shares of QCOM with a $53 price target, which represents a nearly 24% downside from where the stock is currently trading.
Long notes, “We believe adding NXPI to the QCOM income statement would add to earnings, potentially bringing 25-30% accretion in FY 2018 (though we do not have an official QCOM estimate at this time).” However, the analyst acknowledges that this EPS accretion would be a double-edged sword that “would come at a cost,” noting the current net cash balance of $19 billion would subsequently yield a net debt position reaching $21 billion, if the transaction has a $40 billion price tag.
Meanwhile, Long views NXPI as a far better “diversified player,” when compared to QCOM whose main strengths lie in the mobile market. The analyst considers it high time that QCOM diversifies as well, commending NXPI for its “strong positions” in both the automotive as well as security segments. “Regardless, we estimate that the combined entity would have a 70% exposure to mobile, which is still too high,” Long adds.
The analyst concludes, “We believe Street sentiment around this deal will be positive, which could help QCOM shares in the near term. We remain Underperform as we see share losses in chips, and low/no growth in the royalty business weighing on the shares over time.”
According to TipRanks, which measures analysts’ and bloggers’ success rate, four-star analyst Tim Long is ranked #476 out of 4,200 analysts. Long has a 62% success rate and earns 7.6% in his annual returns. However, when recommending QCOM, Long loses 8.2% in average profits on the stock.
TipRanks analytics demonstrate QCOM as a Buy. Based on 18 analysts polled in the last 3 months, 10 rate a Buy on QCOM, 7 maintain a Hold, while 1 issues a Sell. The 12-month price target stands at $64.54, marking a 4% downside from where the shares last closed.