3 Reasons to Buy Qualcomm: Cowen

As Qualcomm Inc.’s (QCOM) deal to buy NXP Semiconductors N.V. (NXPI) falls by the wayside and the chipmaker announces a new $30 billion share repurchase program, one team of bulls on the Street is revisiting its thesis. (See also: What Qualcomm’s Failed Bid for NXP Means for Chips.)

Analysts at Cowen & Co. upgraded shares of Qualcomm from market perform to outperform, calling the stock a “compelling buy” due to a variety of factors including a settlement with either Apple Inc. (AAPL) or Huawei, the execution of a buyback, traction with adjacent products into non-mobile verticals and the “potential infusion of new ideas into management.”

Apple’s Influence Over Qualcomm Now ‘Minimal’

“Several potential catalysts could unlock significant value within the Qualcomm franchise,” wrote Cowen’s Matthew Ramsay in a note to clients Monday, as reported by CNBC. Citing an improved risk/reward profile, he increased his 12-month price target to $80 from $64, reflecting a 22% upside from Tuesday morning. Trading down 0.5% at $65.40, QCOM stock has gained 2.2% year-to-date (YTD) compared to the broader S&P 500’s 7% increase over the same period. 

“Qualcomm is in a favorable negotiating position” as it heads toward court dates with Apple before the International Trade Commission (ITC), wrote the analyst, who expects a settlement to be reached with either Apple or China’s Huawei Technologies in ongoing litigation. “Apple’s influence over Qualcomm’s business is now minimal,” wrote Ramsay. “We believe the risk/reward heading into non-standard patent ITC case against Qualcomm is unfavorable for Apple.”

Cowen lifted its 2019 earnings per share (EPS) estimate by 20% to $5.93 to account for “$1 billion in planned spending reductions, unwinding of elevated legal expenses and potential for Apple and Huawei royalty dispute resolutions for the lower forward share count.” Ramsay indicated that the chipmaker can achieve a 2020 EPS runrate of roughly $8, fully annualizing the fiscal 2019 catalysts, and even in the case of a bearish scenario, a 50% royalty discount settlement at Apple, as reported by Benziga. (See also: Qualcomm Is a ‘Value Play’ in Tech Turmoil.)

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