Top analyst Matt Ramsay at Cowen initiates coverage on Qualcomm (NASDAQ:QCOM) from the sidelines, seeing great potential in this chip giant- but with full understanding that even strong prospects do not offer practically any certainty. As such, the analyst initiates a Market Perform rating on QCOM stock with a $58 price target.
Though Ramsay is playing it safe on the semiconductor player, assessing three chief opportunities that could turn catalysts unlocking substantial value brimming “within the Qualcomm franchise: 1) settling with either Apple or Huawei, 2) closing the accretive NXP acquisition or an aggressive buyback, and 3) a potential infusion of new ideas into management that may be welcome by investors. However, each of these has timing, financial and strategic uncertainties.”
This is a tech player far surpassing its rivals when it comes to the 5G baseband tech arena, in terms of standards-based as well as implementation IP, continues Ramsay. QCOM’s position in this launch is robust and underestimated. Glancing back at the first ramp of the 4G, when the company led market share of LTE modems, the analyst likewise anticipates QCOM is primed to meaningfully boost its share as soon as 5G commercial shipments kick off.
“We would note that during the 3G to 4G transition, Qualcomm revenues more than doubled, and the company captured >80% share of units during the first three years of 4G. This IP was not developed overnight, and we believe Qualcomm has been investing for years ahead of the rollout […] Both OEMs continue to utilize Qualcomm basebands, indicating the performance gap over internal/merchant offerings. We see this leadership only expanding as 5G places new and complex demands on baseband processing,” asserts Ramsay.
Moreover, Ramsay sizes up various opportunities for QCOM shares and valuation to jump even “higher.” Yet, what of the timing and sheer “magnitude” of these potential share drivers? Amid a slew of short-term royalty disputes, the analyst says it comes down to “visibility” on catalysts waiting in the wings, and this is what keeps him cautious. The analyst explains the very drivers that could lift shares likewise could bring further challenges to QCOM’s business model down the line- the kind of grey area that makes valuating this stock quite a challenge of its own.
Against the QCOM management team guiding for $3.75 in non-GAAP EPS in fiscal 2019, the analyst calls for $4.83 per share. In a nutshell, Ramsay boils down his caution: “So much potential value to unlock, yet near-zero certainty.”
Matt Ramsay has a very good TipRanks score with a 64% success rate and a high ranking of #98 out of 4,798 analysts. Ramsay yields 24.4% in his annual returns. When recommending QCOM, Ramsay earns 0.0% in average profits on the stock.
TipRanks indicates optimistic sentiment circulating QCOM shares. Out of 14 analysts polled in the last 3 months, 6 are bullish on QCOM stock, 7 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 8%, the stock’s consensus target price stands at $62.00.