Qualcomm (QCOM) investors received good news in April in the form of a legal settlement with Apple (AAPL), which brought the two together for a licensing agreement and sent Intel’s 5G hopes down the drain. Qualcomm’s agreement with Apple is a big deal for both on many levels; Qualcomm continues to prove itself as a leader in 5G, which is set to start paying dividends as phone manufacturers begin rolling out 5G-capable devices this year. Apple’s iPhone, of course, is one of those devices, and until now had been counting on Intel to supply the 5G chips. But with the agreement with Qualcomm, Intel (INTC) dropped out of the segment, paving the way for Qualcomm to be Apple’s supplier.
Last week, the chip giant released encouraging Q2 earnings, reporting higher profit, and noting that the Apple agreement should generate between $4.5 and $4.7 billion in back revenue from Apple paid next quarter.
On the news, Susquehanna analyst Christopher Rolland remains positive on the stock, raising his price target by $5 to $100, which implies nearly 14% upside from current levels. (To watch Rolland's track record, click here)
On the recent report, Rolland says Qualcomm “benefitted from one-time catch-up payments in C1Q and should also benefit when newly agreed upon Apple royalties come in C2Q (we believe this may approach $300 million).” The company is also working on an agreement with Huawei, which will suspend $150 million interim payment C3Q19 “as they continue to work out a longer term resolution there.” But Rolland says “management continues to believe the resolution with Apple ultimately gives them a stronger bargaining position.”
Looking ahead, the analyst was disappointed that operating spending was “guided higher than anticipated for C2Q owing to an increase in employee bonus plan from the Apple settlements.” But Rolland says this increase is a one-time occurance and expects “the company to work closer to their prior $6.4 billion run-rate target in 2H19.” Nevertheless, Rolland says Qualcomm is “extremely well positioned for the 5G ramp as they now have 75 design wins (up from 30 announced at CES), and the majority of these designs also utilize Qualcomm RF front-end content.”
All in all, Qualcomm continues to be a Wall Street favorite, with the stock skyrocketing over 50% YTD. TipRanks analysis of 21 analyst ratings shows a consensus Moderate Buy rating, with 15 analysts saying Buy and six Holding. The price target among these analysts stand at $93.76, suggesting shares can rise nearly 8%.
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