The major driver of Qualcomm (QCOM) stock over the near term should be the massive share repurchase program initiated last Thursday. As a reminder, the chip giant announced a $16 billion share buyback plan as part of a broader initiative to repurchase up to $30 billion worth of its stock. By reducing the number of shares outstanding, it helps to boost future earnings per share and growth rates.
As such, Deutsche Bank’s top analyst Ross Seymore has slightly raised his EPS estimates for Qualcomm, while raising the price target accordingly to $70 (from $67). However, the analyst maintained a Hold rating on the stock, as he continues to see discrete event risks due to the company’s ongoing litigation/disputes with licensees, as well as QCT revenue headwinds as QCT become increasingly concentrated in China, due to share loss at Apple.
Seymore noted, “We had already reflected $24b in share repo from F4Q18-F1Q20, with share count declining ~-20% exiting F1Q20 (Dec) vs. QCOM’s reported F3Q18 (Jun). Given the final ASR settlement is expected to occur in F4Q19 (Sep), we now model share repo of $26.1b exiting F1Q20 (Dec) with share count declining ~-22% vs. QCOM’s most recent reported qtr (F3Q18).”
“While from an event perspective, legal/dispute settlements would be a positive, we expect the settled royalty rate to be lower than the rates prior to the disputes. Upside/downside risks include macro, market share gain/loss, favorable or unfavorable legal/regulatory rulings, design-win execution, execution on QCOM’s cost reduction program, and volatility from customer/end-market concentration,” the analyst added.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Ross Seymore has a yearly average return of 27.1% and a 80% success rate. Seymore is ranked #45 out of 4879 analysts.
Out of the 25 analysts polled in the past 12 months, 14 rate Qualcomm stock a Buy, 10 rate the stock a Hold and 1 recommends a Sell. With a downside potential of nearly 4%, the stock’s consensus target price stands at $71.11. (See QCOM price targets and analyst ratings on TipRanks)