QUALCOMM, Inc. (NASDAQ:QCOM) investors are high-tailing it today, sending shares dropping tumbling 8%, once the Street caught word of the Wall Street Journal’s claims that by next year, Apple Inc. (NASDAQ:AAPL) may drop any use of the company’s chips in its products.
Top analyst Vijay Rakesh at Mizuho continues to hold faith that the NXPI acquisition will carry the chip giant forward, but acknowledges that the company “has been hamstrung with IP litigation.” All the same, the analyst asserts: “We still believe the NXPI acquisition is on track,” an acquisition that could be a catalyst for around $8 billion plus in free cash flow.
As such, the analyst reiterates a Buy rating on QCOM with a $65 price target, which represents a close to 30% increase from current levels.
“While we believe QCOM would like to keep AAPL as a customer, we believe with the IP litigation issues most street estimates do not have any significant Apple/IP contribution from Apple for 2018. Also AAPL QCT ‘modem’ margins for QCOM are mostly margin-dilutive. While the article notes Mediatek (MTK) as a potential supplier, we believe MTK has been moving away from the high-end smartphone chips to the benefit of QCOM […] though ‘low-end modems’ might still be a possibility. L-T the trend should be modestly positive for INTC,” underscores the analyst.
Should the Wall Street Journal prove to be right, Rakesh anticipates this trend would be “incrementally positive for rival Intel, adding approximately $1 billion in revenues to the competitor’s table next year.
Meanwhile Apple may need to nonetheless give IP royalty payments for using CDMA/3G, contingent upon the resolution of those IP payments next year, which includes catch-up payments.
Overall, “We believe based on our checks even into 2H17 on the iPhone 8/8 Plus/X, QCOM has potentially maintained iPhone modem market share, we believe given some continued value in QCOM modems,” Rakesh contends.
Vijay Rakesh has a very good TipRanks score with a 74% success with a high ranking of #22 out of 4,699 analysts. Rakesh realizes 28.1% in his yearly returns. When recommending QCOM, Rakesh yields 0.7% in average profits on the stock.
Analysts are tied up in knots when it comes to this tech stock, especially when glancing at 7 analysts polled by TipRanks in the last 3 months, with 4 bullish on Qualcomm stock and 3 remaining sidelined. With a return potential of 22%, the stock’s consensus target price stands at $61.75.