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Evercore ISI Weighs in on Qualcomm (QCOM) in Light of Legal Setback

support@smarteranalyst.com (Ben Mahaney)

It’s a short and dramatic plunge for Qualcomm (QCOM) stock.

Yesterday, the chip giant's shares lost 11% of their value -- the biggest fall in more than two year -- and are down 4.3% today (as of this writing). As you probably know, a federal judge ruled against Qualcomm in a dispute with the U.S. Federal Trade Commission (FTC). Judge Lucy Koh found that the chip giant used its dominant position to harm competition and charge smartphone makers excessive licensing fees.

The judge ordered changes to Qualcomm's current business practices, which include:

  1. Renegotiating licensing agreements with customers free of unfair business practices.
  2. Offering to license its patents to rival chipmakers.
  3. No longer signing exclusive agreements with smartphone makers that block rivals.

Don Rosenberg, executive vice president and general counsel of Qualcomm commented, "We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law." Furthermore, the company said it will immediately seek a stay of the district court’s judgment and an expedited appeal to the U.S. Court of Appeals for the 9th Circuit.

As investors, you're probably wondering what this means for the stock. Well, there are still many unanswered questions, as Evercore ISI analyst C.J. Muse put it.

"What is clear is that this decision was entirely unexpected and the impact on the business model could be material, assuming QCOM loses on appeal. No changes to our rating and price target now as we await more clarity, but there is no doubt this decision will drive shares lower today (back to $60-65?) and potentially keep investors (again) on the sidelines until there is more clarity to the certainty of QCOM’s royalty and chipset businesses. We will come back as soon as we have more clarity," Muse opined.

Until there is more clarity into how the FTC dispute will play out, Muse leaves his Buy rating and $105 price target unchanged.

Occasionally, the market overreacts to corporate headwinds, giving the long-term, patient investor a second crack at a solid company. Qualcomm, the world’s biggest producer of mobile phone chips, could be a case in point. Over the last three months, QCOM stock has received a whopping 15 'buy' ratings vs. 6 'hold' ratings. As a result, the stock has a ‘Buy’ analyst consensus rating on TipRanks. These analysts (on average) believe the chip giant has solid upside potential of nearly 35% from the current share price. This would take QCOM from $69 all the way to $92.88.

 

Read more on QCOM: Qualcomm (QCOM) Stock Is a Buy Despite Huawei Saga, Says Analyst

 

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