Qualcomm (QCOM)-NXP Semiconductors (NXPI) Deal Is Headed for a Breakup; Top Analyst Dives In


With the deadline for approval of Qualcomm’s (NASDAQ:QCOM) proposed acquisition of automotive chip NXP Semiconductors (NASDAQ:NXPI) just hours away, the deal is headed for a breakup, says Mizuho’s top analyst Vijay Rakesh.

Qualcomm has been trying to wrap up its $43 billion acquisition of NXPI for over 18 months. The merger has received regulatory approval from 8 counties. However, China’s Ministry of Commerce has yet to approve the deal amid rising trade tensions with the US.

Rakesh commented, “July 25 is ‘Judgment Day’; a deal appears less likely, with our desk estimating a ~22% implied probability of a deal. We believe continued trade tensions with China will likely be the final straw for the NXPI deal, ending an almost two-year ordeal where MOFCOM approval in China has remained just out of reach. With NXPI trading ~25% below the acquisition offer price, barring a last minute surprise, the implied deal probability is low at ~22%.”

Going into earnings this evening, Rakesh believes that weaker handset market and upcoming litigation could be a headwind for QCOM. The analyst noted, “We believe N-T handset remain weak, with Vivo/Oppo weaker, and with Win Semi guiding for a down ~10% q/q 3Q18. While the iPhone build sentiment is positive, we believe QCOM shares the iPhone ramp with INTC. Also, a potential $20-30B buyback could be positive. We are looking for QCOM JunQ rev/EPS at $5.2B/$0.70 (Cons $5.2B/$0.71).”

Net net, Rakesh reiterates a Buy rating on Qualcomm shares, with a price target of $64, which represents a potential upside of 9% from where the stock is currently trading.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Vijay Rakesh has a yearly average return of 27.5% and a 69% success rate. Rakesh has a 2.9% average return when recommending QCOM, and is ranked #40 out of 4835 analysts.

Out of the 23 analysts polled in the past 12 months, 9 rate Qualcomm stock a Buy, 13 rate the stock a Hold and 1 recommends Sell. With a return potential of 13.4%, the stock’s consensus target price stands at $66.44.

 

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