Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Owning Qualcomm (QCOM) Stock Should Be Worth the Noise, Says Morgan Stanley


What goes up, must come down. That seems to be ringing true for Qualcomm (QCOM) stock.

After the smartphone chip giant secured a major win against Apple, in which the two companies came to a licensing agreement, shares skyrocketed more than 50%. However, late last month, an unfavorable ruling sent its stock plunging over 20%, as the U.S. District Judge Lucy Koh sided with the FTC in an antitrust case, saying Qualcomm “strangled competition” by charging unreasonably high royalties for its patents. The ruling set into place sweeping changes to its business model, which many investors fear will have a negative impact on performance.

However, analyst James Faucette of Morgan Stanley keeps his Overweight rating on the stock, with a $95 price target, which implies over 40% from where the stock is currently trading (To watch Faucette’s track record, click here)

Koh ruled Qualcomm must change its business practices to level the playing field, including offering to license its patents to rival chipmakers and now cannot block rivals through exclusive agreements with smartphone. This is a big burden for the company from all angles. But even more so given that the ruling may allow Apple to renegotiation the agreement. It isn’t known for sure if this will happen, given Apple relies on Qualcomm for implementing 5G technology into the iPhone, and perhaps prefers to not damage the relationship.

Right now, the appeal of the ruling is on many Qualcomm investors’ minds. Following an investor call with antitrust lawyer, Faucette says he came away “mildly more encouraged about the prospects for the case’s ultimate outcome.” Crockett believes that the current administration could hold weight in appeal and ultimately benefit the company. But the attorney still thinks Qualcomm’s legal work must “improve” if they expect a different outcome from before. Nevertheless, the analyst maintains his positive rating on its stock, as he does not believe the current ruling will have much of an impact on the chip giant business.

“We continue to believe owning QCOM should be worth the noise. We think most agreements are now compliant with judge Koh’s ruling, while required licensing of SEP to competing chip makers is not clearly attractive to others nor does it touch non-SEP IP, over which Qualcomm nearly has full discretion on its pricing and application,” Faucette concluded. 

All in all, since Qualcomm has shown it is the leader in 5G tech, Wall Street is still bullish on the long-term. TipRanks analysis of 24 analyst ratings shows a consensus Moderate Buy rating, with 14 analysts saying Buy, nine suggesting Hold and only one recommending Sell. The average price target among these analysts stand at $85.76, which is about 25% above current levels. (See QCOM price targets and analyst ratings on TipRanks)

 

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