With Qualcomm (QCOM) shares rising 50% then quickly falling 25%, many are wondering how to play the stock.
While the company scored a major victory with an agreement with Apple to develop 5G on the iPhone, it also recently lost a major court decision that effectively ruled the company had to curb some anticompetitive practices to even the playing field with their competitors. More recently, geopolitics is playing a prominent role in the stock’s volatility, with the US-China tension making investors feeling uneasy about Qualcomm and many other companies that rely on a strong US-China relationship.
But in the long term, Morgan Stanley analyst James Faucette is a buyer, as he maintains his Overweight rating with a $95 price target. (To watch Faucette’s track record, click here)
Though Faucette is cutting his estimates for 2019 and 2020, he expects Qualcomm’s share of Apple’s production mix to increase to 60%. Faucette expects the Apple agreement to add $2 in EPS at “full ramp,” which he expects to take 18 months. But he doesn’t think it stops there, believing “further opportunities with Apple could exist in connectivity use cases beyond handset and in potential RF attachments.”
Tensions between the US and China are also contributing to concern over Qualcomm’s stock. Because of the Huawei ban, Faucette says he “reduced [his] assumption of Huawei’s contribution to…$0” this quarter, from about 2% of revenue. But as Huawei is expecting to see a massive slowdown in sales and shipments, Faucette sees Qualcomm playing a role in filling the empty void. He estimates Qualcomm “could see an incremental [EPS increase of] $0.30-$0.70” as a result.
Overall, Qualcomm is looked at as the leader of 5G and many see this as contributing to the agreement with Apple. As a result of the agreement, Qualcomm’s stock surged 50% in the aftermath, as rival Intel dropped out of 5G, paving the way for Qualcomm to work with Apple on bringing 5G to the iPhone. But with the recent ruling against Qualcomm, it is possible that Apple could renegotiation the terms of their deal, though many do not see this happening as Qualcomm is holding most of the cards through its leadership in 5G.
All in all, while Qualcomm is facing some pressure from China and the courts, Wall Street is still bullish on the company going forward. TipRanks analysis of 24 analyst ratings shows a consensus Moderate Buy rating, with 14 analysts saying Buy, nine saying Hold and only one recommending Sell. The average price target among these analysts stands at $85.29, about 19% above current levels. (See QCOM price targets and analyst ratings on TipRanks)