Qualcomm (QCOM) ended July with a bang. The semiconductor giant saw out the month by posting an estimate beating FQ3 report. Exuberant investors sent shares up by a mighty 20% in the following sessions, resulting in Qualcomm stock notching a new all-time high.
While the results bought in beat both for the top and bottom line, the Street’s most buoyant reaction was reserved for a surprise not reflected in the quarter’s balance sheet.
The news Qualcomm had signed a long-term patent licensing agreement with Chinese telecom giant Huawei sent ripples of excitement across the Street. Add into the mix the $1.8 billion in past licensing fees which Huawei will pay Qualcomm and it is easy to understand the positive reaction.
5-star Deutsche Bank analyst Ross Seymore believes the deal with Huawei “represents $200- 250m QTL revs in F4Q.”
For Seymore, “the agreement removes the last major licensing uncertainty facing QCOM,” and now means the chipmaker has multi-year license agreements with every major handset OEM.
Overall, Seymore estimates the annual benefit to revenue will amount to approximately $1.5 billion and EPS should benefit to the tune of $0.8.
However, looking at the bigger picture, the deal is an addition to what already looks like a fine set of catalysts to further propel Qualcomm forward.
Seymore said, “While this agreement alone warrants a higher value for QCOM shares, we see upside beyond the aftermarket rise as we continue to believe QCOM is well positioned to see further acceleration in revenue in Dec (Apple ramp, QTL seasonality), rising market share in 5G (increasing revenue/MSM on modems and RFFE) and improved margins. Consequently, while macro/COVID-related uncertainties remain elevated, we believe QCOM is uniquely positioned to benefit from growth in the 5G market, deliver upside to Street rev/EPS ests, and earn a higher valuation that closes its current discount vs. large cap semi peers.”
Down to basics, what does it all mean for investors? Seymore rates QCOM a Buy along with a $115 price target. This figure implies a modest upside of 4% from current levels. (To watch Seymore’s track record, click here)
The Street’s outlook for Qualcomm tells a similar story. QCOM's Moderate Buy consensus rating is based on 12 Buys, 7 Holds and 1 Sell. Backed with a $114.82 average price target – virtually identical to Seymore’s - the analyst’s colleagues also project upside of 4.5%. (See Qualcomm stock-price forecast on TipRanks)
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