QUALCOMM, Inc. (QCOM) Wins Over New Confidence from Christopher Rolland

Susquehanna's Christopher Rolland boosts his price target on QCOM stock on back of $1 billion cost reduction initiative.


QUALCOMM, Inc. (NASDAQ:QCOM) has revealed a new $1 billion cost reduction program in the works as of Tuesday morning while setting a non-GAAP EPS target from $6.75 to $7.50 for fiscal 2019, taking under account accretion for NXP as well as the resolution of licensing disputes that have been circling the company.

Susquehanna Christopher Rolland finds the new target both “very achievable” and wagers that it is “perhaps even a tad conservative.” As far as Rolland sees the press release, the semiconductor player “makes an argument for rejecting Broadcom’s proposal (and BoD nominees) by establishing 2019 expectations and a new $1 billion cost reduction program.”

Liking the case made for ‘going it alone,’ the analyst maintains a Positive rating on QCOM stock while bumping the price target from $64 to $78, which implies a nearly 15% upside from current levels. (To watch Rolland’s track record, click here)

“Additionally, the target is achievable with or without an NXP acquisition as management offered a large accretive stock buyback as an alternative (buyback nearly $1 accretive using current net cash position, more if using debt already on BS). Also interesting, management took the opportunity to highlight adjacent businesses (RFFE, Auto, IoT, networking, Datacenter), which surprisingly are expected to contribute $7 billion to $8 billion to F2019 revenue,” highlights Rolland.

The analyst concludes offering further context behind the cost reduction program: “Management noted the $1 billion cost reduction will come from four primary areas, including: 1) refocusing the business on new SAMs and elimination of programs that are no longer attractive; 2) driving down SG&A spend by 200 to 300 bps on productivity initiatives and lowering overhead costs; 3) restructuring the costs within its licensing business; and 4) completing its spending on pre-commercial 5G investments. $1 billion of cost reduction equates to ~$0.60 of EPS benefit in our model.”

On the heels of the new initiative, the analyst likewise hikes his fiscal 2019 non-GAAP EPS forecast to $4.41.

TipRanks points to a Wall Street consensus split between the bulls and those not ready to take the leap quite yet. Based on 13 analysts polled in the last 3 months, 6 rate a Buy on Qualcomm stock while 7 maintain a Hold. The 12-month average price target stands at $73.11, marking a nearly 8% upside from where the stock is currently trading.  

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