Qualcomm (QCOM) gained a small victory from an appeals court Friday, in which a stay was granted for the recent ruling against the company. That negative ruling came from Judge Lucy Koh, who sided with the FTC and said Qualcomm’s “licensing practices have strangled competition…” and have brought harm to rivals and consumers. She ordered that the company must change its business practices, including renegotiating licensing agreements — but Friday’s stay means Qualcomm does not need to adhere to these requirements until after the appeals process is complete.
On the news, 5-star Canaccord analyst Michael Walkley is reiterating his Buy rating and $87 price target on QCOM stock. (To watch Walkley’s track record, click here)
When the ruling came down against Qualcomm in May, shares plummeted more than 20%. Though Qualcomm is appealing the decision, investors were nervous of the short-term and long-term implications. Walkley says it is “still uncertain” how the 9th Circuit Court will rule, but “the granting of a stay is at least a positive first step for Qualcomm in potentially overturning some of Judge Koh’s rulings.”
Walkley believes the appeals process could take as long as two years, and uncertainty will remain a theme until the process plays out. But the analyst believes “Qualcomm has several paths and compelling arguments to eventually change or overturn Judge Koh’s rulings which could create potential for longer-term upside to our estimates.”
Even with the noise and uncertainty, the analyst believes Qualcomm has a strong chance to maintain its current licensing business and is well positioned to benefit with 5G network builds ramping around the world. Qualcomm is looked at as the leader in 5G technology, with the likes of Apple and LG Electronics tapping the company to develop 5G technology for their phones.
Last week, prior to the stay, Qualcomm and LGE came to an agreement, with Qualcomm licensing its 5G technology for LGE phones. The deal reinforces Qualcomm’s position in the industry, while also showing investors that the Koh ruling wasn’t as powerful as many originally thought.
Granted, as Qualcomm is in shaky standing with the law, not everyone is as enthusiastic about the stock as Walkley. Out of 16 analysts polled in the last 3 months, nine remain sidelined on Qualcomm stock, sis are bullish, and only one is bearish. The 12-month average price target stands at $78.93, which is pretty much in line with where the stock is currently trading. (See QCOM’s price targets and analyst ratings on TipRanks)