Qualcomm Soars on Apple Pact, and Analysts See More Room to Run
Qualcomm Rally Has Room to Run After Apple Pact, Analysts Say
(Bloomberg) -- Qualcomm Inc. jumped 14 percent to continue a two-day rally of about 40 percent after announcing a settlement with Apple Inc., and signing a deal for royalties and chipsets with the iPhone maker to end the two-year legal dispute.
Analyst covering the chipmaker universally applauded the settlement, which Qualcomm said will add $2.00 of incremental earnings per share to its 2020 financial results, and at least three brokers upgraded their ratings on the stock. Bernstein analyst Stacy Rasgon, who had labeled the company’s shares “virtually uninvestible” while litigation was ongoing, said “the resolution will likely go a long way toward assuaging investors who have been terrified of the potential for negative legal and regulatory outcomes.”
Qualcomm shares traded at $80.66 in New York, the highest price the stock has reached since July 2014. Apple shares rose 1 percent to $201.16 each.
Here’s what analysts are saying:
JPMorgan, Samik Chatterjee
Upgrades Qualcomm to overweight from neutral and raise price target to $88 from $54 as 5G technology leadership will be appealing to investors, especially in the absence of litigation overhang.
Believes the agreement with Apple shows the strength of Qualcomm’s patent portfolio and leadership in 5G chipsets.
Stifel, Kevin Cassidy
Cassidy upgraded Qualcomm to buy from hold and says that based on management’s additional $2.00 earnings per share guidance, there will be no -- or only a slight -- discount to Qualcomm’s licensing fee once iPhones ramp into production with Qualcomm modems.
He says Apple made the concessions based on its need to have a 5G iPhone in the market in 2020.
Stifel also raised its Qualcomm price target to $100 from $57.
Morgan Stanley, James Faucette
“We think this settlement is a significant win for Qualcomm and results in a similar, if not better outcome than if Qualcomm had won at the FTC.”
Faucette says the settlement with Apple gives Qualcomm “some leverage with other handset OEMs to ensure future royalty compliance,” also noting that “any improvement in potential to bring Huawei into compliance would be a key incremental positive.”
He expects the settlement to assure ongoing compliance within the rest of the handset OEM market and believes there will be growth beyond the settlement.
Maintain equalweight on Qualcomm and $55 price target.
Citigroup, Christopher Danely
“Believe the deal could be positive for Qualcomm given the restoration of licensing and chipset revenue.” He estimates Qualcomm could see an additional $7 billion in revenue and $1.55 to Citigroup’s 2020 estimates of $22.5 billion and $3.57 earnings per share.
Expects other Qualcomm “customers will pursue similar royalty and chipset pricing if Apple gets a good deal.”
Cowen, Matthew Ramsay and Krish Sankar
The agreement “removes a massive overhang on Qualcomm shares” Ramsey writes, adding that after Tuesday’s 23 percent rally, shares remain undervalued. Cowen sees significant value entering a period of 5G volume shipments with $2.00 of incremental EPS now expected that doesn’t include Huawei, and a run rate of $7.00 earnings per share in 2021, which should help the stock outperform.
Cowen raises its price target to $91 from $70 and maintains an outperform rating.
Sankar says that Apple’s 5G modem sourcing has now been de-risked and a 5G iPhone in the second half of 2020 is now a reality, abating concerns iPhone demand would suffer if 5G phones weren’t ready until 2021.
Bernstein, Stacy Rasgon
The Apple-Qualcomm “resolution caps a multi-year period in which QCOM’s stock has broadly been viewed as virtually uninvestible, and the resolution will likely go a long way toward assuaging investors who have been terrified of the potential for negative legal and regulatory outcomes.”
“We shall see whether this chipset gain is sustainable over the long term however; guidance for a ‘multi-year’ chipset supply agreement is less specific than what was laid out for licensing and raises the question of what AAPL’s plans might be in 2-3 years (when presumably the competitive environment might be more favorable, or they perfect their own modems).”
Maintain marketperform and $60 price target.
What Bloomberg Intelligence Says
"Qualcomm’s Apple settlement removes the biggest overhang on its stock and clears up its earnings-expansion potential ahead of the 5G ramp-up."
"Fiscal 2019 EPS is likely enhanced by catch-up payments, and ongoing earnings may also be driven by royalty payments. Most importantly, Qualcomm’s royalty model will likely remain intact, and it may also supply chips to Apple, in a blow to Intel."
-- Anand Srinivasan, senior technology analyst
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To contact the reporter on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch
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