Qualcomm’s (QCOM) stock has moved with the courts thus far in 2019.
Just recently, the chip maker’s request to stay the recent ruling against it was denied by a federal appeals court. Judge Lucy Koh had originally ruled with the FTC in its case against Qualcomm, saying “Qualcomm’s licensing practices have strangled competition…” and has brought harm to rivals and consumers. This was a major blow to the company, who was fresh off a new licensing agreement with Apple — also coming after a legal battle. But Koh’s ruling may mean Qualcomm would need to renegotiate positive terms with Apple, as well as its licensing practices altogether.
Given the uncertainties, analyst Vijay Rakesh of Mizuho remains Neutral on the stock with a $68 price target, which implies nearly 10% downside from current levels.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Rakesh has a yearly average return of 20.1% and a 63% success rate. Rakesh is ranked #73 out of 5,238 analysts.
Since the ruling, Rakesh “had downgraded QCOM on worries of potentially lower royalty rates and potential for other OEMs to re-negotiate lower royalties with the FTC ruling.” The analyst says he has been proven right, as he is seeing “multiple OEMs asking for lower licensing/royalty rates entering the 2H19 re-licensing period as many of the OEMs look to add 5G, with 4G licenses set to expire in 2H19.”
Beyond the negative ruling, Raskesh believes “there could be topline downside” heading into earnings. He sees “uncertainty” with Huawei’s “~$150M license/royalty payments pending the Huawei ban and pending resolution,” as well as that LGE wants to renegotiate its licensing deal with Qualcomm. As a result of the ruling, LGA may receive more favorable terms.
While Qualcomm is appealing the ruling and some are playing the waiting game on its stock, the market tells a more positive story. Shares are up about 15% since dropping 25% after the ruling, as many investors see a strong long-term for Qualcomm stock. This is mainly about Qualcomom’s leadership position in 5G — many see the company as the go-to option for 5G development, including Apple, which tapped Qualcomm to develop iPhone’s 5G capability in the recent agreement between the two.
Notwithstanding the negative ruling, and as a result of its technological ability, 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 stands at $85.43, which implies nearly 12% above current levels. (See QCOM’s price targets and analyst ratings on TipRanks)