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QUALCOMM, Inc. (QCOM): Don’t Count on LBO; Current Stock Price “Severely” Undervalues the Company, Says Top Analyst

RBC Capital's Amit Daryanani believes QCOM is worth more than $80 per share.


Is former chairman and CEO of QUALCOMM, Inc. (NASDAQ:QCOM) Dr. Paul Jacobs musing over taking his chip giant private?

Rumor has it that the QCOM head has been chatting with investors including the likes of Softbank, according to the Financial Times.

Top analyst Amit Daryanani at RBC Capital is voting no to this recent buzz from the rumor mill, finding the scenario of an LBO coming to light as “unlikely.”

As far as the analyst is concerned, the reasons why this potential in taking the company private does not have the greatest odds boils down to three overarching reasons why: “While mathematically the LBO math would work (though leverage would be >7x) we see three issues here – 1) QCOM board has been adamant that ~$80 severely undervalues the company so presumably any bid by Dr. Jacobs would be materially higher ($90+?) – this just makes the LBO math difficult given we are looking at ~$160B EV, 2) Funding Sources: Given CFIUS concerns around R&D investments vs. short term profitability, we think taking on leverage from here especially with non U.S. funding entities like Softbank could make this difficult to pass, and 3) Going through an elongated LBO process could further delay the timing on settlements from AAPL and Huawei.”

In doing the math, an LBO could take place at a price of over $90 in an “upside scenario,” writes Daryanani- assuming the NXP acquisition is closed. Yet, the analyst calculates that $30 billion plus in equity would be needed.

Ultimately, Daryanani concludes believing this chip giant is worth far more than its current price: “We think QCOM is worth $80+ and the current stock price ($60) is severely undervaluing the company and the host of near-term catalysts – AAPL & Huawei settlement, QCT allocation wins, NXPI deal close and better operating leverage going forward.”

Therefore, the analyst maintains an Outperform rating on QCOM stock with an $80 price target, which implies a close to 32% upside from current levels.

Amit Daryanani has a very good TipRanks score with a soaring high success rate of 94% and a stellar ranking of #3 out of 4,786 analysts. Daryanani garners 31.2% in his yearly returns. However, when recommending QCOM, Daryanani forfeits 8.4% in average profits on the stock.

TipRanks highlights QCOM as a largely optimistic camp of analysts with some apprehensive voices in the mix. Out of 12 analysts polled in the last 3 months, 7 are bullish on QCOM stock with 5 on the sidelines. Yet, based on these analysts’ expectations, positivity is well-baked in to the consensus average price target of $71.91, marking 18% in upside potential.