Qualcomm (QCOM): Is an Approved NXPI Deal on the Horizon? Top Analyst Says Yes

RBC Capital's Amit Daryanani sees increasingly favorable odds for QCOM to at last close its highly anticipated NXPI deal.

QUALCOMM, Inc. (NASDAQ:QCOM) could be getting close to finalizing its M&A play on NXPI, considering the U.S. and ZTE have come to terms on an agreement. One of Wall Street’s best performing analysts puts the limelight on better probability for an NXPI approval in a new bullish research note on QCOM.

Top analyst Amit Daryanani at RBC Capital sees reason for this deal to come to pass despite China’s MOFCOM (Ministry of Commerce) keeping the transaction on lockdown for over 15 months. The past weeks have seen Daryanani get more and more encouraged on this deal, as he muses, “We are almost there?”

“We think the probability of the QCOM/NXPI deal getting MOFCOM approval has improved over the last few weeks given 1) U.S. and ZTE have reached a deal, which should reduce a certain degree of geo-political uncertainty, 2) MOFCOM approved Toshiba’s $18B memory sale to the Bain led consortium in May, and 3) MCHP/MSCC transaction cleared MOFCOM earlier. We think this logically opens the door for the QCOM/NXPI transaction which has been held up by MOFCOM for 15+ months. NXPI deal getting approved would unlock sizable $1.50+ synergies for QCOM,” underscores the analyst.

With an NXP deadline waiting in the wings July 25th, Daryanani sees an “opaque” picture at MOFCOM, but likewise sees a chip giant turning its wheels with the Chinese regulatory body. Notably, MOFCOM just gave its not to Qualcomm’s joint venture with China’s state-owned Datang Telecom for designing smartphone chipsets. The analyst forecasts accretion from NXPI may realize roughly $1.30 to $1.50 in EPS power. Should MOFCOM approvals not transpire by the deadline, the company likewise could step into its “plan B.” Here, the analyst bets a $25 to $30 billion buyback points to similar accretion: $1.50.

Additionally, resolution with Apple and an unknown OEM, potentially Huawei combined could generate another boost of $0.85 to $1.05 in EPS. There could be an opportunity to pick back baseband allocation following the AAPL resolution, which has Daryanani pointing to an estimated further $0.05 to $0.10 in QCOM’s EPS corner. The analyst likewise highlights the chip giant’s $1 billion cost cutting initiative as another standout tailwind that could bring an added $0.25 to $0.35 for the company along with normalization of litigation expenses, roughly $0.25 to $0.35. Qualcomm’s team has an incentive compensation intermingled with its capacity to gain fiscal 2019 EPS in a range of $6.75 to $7.50, continues Daryanani. By fiscal 2019, the analyst sees a trajectory for QCOM to hit above $6.00 in EPS.

In a nutshell, Daryanani asserts, “We think QCOM is an attractive name for value investors as a) either NXPI deal gets done or QCOM does a sizable buyback and b) we see a high probability that OEMs under dispute could settle sooner now that it’s clear QCOM isn’t going anywhere. Finally, should we get more discipline and consistent execution, we believe the stock should see a sustained multiple expansion.”

Therefore, the analyst maintains an Outperform rating on QCOM stock with a $70 price target, which implies a close to 16% upside from current levels.

Amit Daryanani has a very good TipRanks score with an 86% success rate and an impressive ranking of #14 out of 4,828 analysts. Daryanani yields 28.0% in his annual returns. When recommending QCOM, Daryanani earns 0.2% in average profits on the stock.

TipRanks hints at some wariness mixed with positive sentiment on the Street hovering over the chip giant’s prospects. Out of 15 analysts polled in the last 3 months, 6 are bullish on QCOM stock, 8 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 3%, the stock’s consensus target price stands at $62.00.

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