With an eye on the impact of escalating risk from the potential M&A move and short-term “sluggish” smartphone market trends in the first half of the year, the analyst reiterates a Buy rating on QCOM stock but scales back the price target from $86 to $79, which nonetheless implies a solid 48% upside from current levels.
Right now, the odds for short-term settlements of licensing disputes are not looking too high. “Given the recent sell-off in Qualcomm and NXP shares amid the US and China trade war issues, we believe the market has started to anticipate a lower probability that China will approve Qualcomm’s bid for NXP,” notes Walkley. First, consider that last night following MOFCOM’s request, QCOM and NXP have inked an extension agreement for the end date of their purchase deal from April 25th to July 25th. The analyst adds, “Further, it appears Chinese regulators have indicated competitive issues delayed the approval. Ironically, the White House enabled Qualcomm to remain independent from Broadcom with the recent Presidential Order, but the current growing trade tensions with China have diminished Qualcomm’s ability to close the accretive NXP deal.”
That said, “The underlying fundamental value remains compelling, especially if Qualcomm eventually closes the NXP Semiconductor acquisition, or even completes a large share repurchase program with the cash on its balance sheet earmarked for NXP. We believe Qualcomm could reach a potential licensing settlement with Huawei over the coming months and, should this occur with NXP closing, then we believe Qualcomm could generate roughly $6.00 in F2019 earnings,” Walkley argues.
Even amid licensing disputes with Apple and Huawei along with a question mark hanging over whether or not QCOM can close the NXP deal, this chip giant remains an “attractive” long-term investment prospect, the analyst concludes, counting on both leading smartphone OEM disputes to “eventually” be resolved.
Though the analyst has lowered short-term forecasts based on reduced smartphone sell-through expectations for the first half of the year, his fiscal 2019 projections remain unchanged. The QCOM team continues to exhibit commitment to meeting its objective of $5.25 in non-GAAP EPS.
Michael Walkley has a very good TipRanks score with a 65% success rate and a high ranking of #61 out of 4,791 analysts. Walkley garners 18.3% in his annual returns. When recommending QCOM stock, Walkley gains 0.5% in average profits on the stock.
TipRanks indicates QCOM is a stock that has magnetized positive attention on the Street. Out of 15 analysts polled in the last 3 months, 7 are bullish on QCOM, 7 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 29%, the stock’s consensus target price stands at $68.00.