Investing in Qualcomm (QCOM) stock has been a rollercoaster ride over the past two months. After Qualcomm’s settlement with Apple, the stock soared as the market saw Qualcomm secures rights to provide Apple with its future 5G mobile chips. However, just a few days later, the FTC determined that Qualcomm violated antitrust laws with their royalty structures included in their contracts with smartphone manufacturers. This news shocked the market and the stock plunged as a result.
The complex legal system Qualcomm will navigate over the coming months and years will determine the chip giant's future. Cannacord analyst Michael Walkley has sorted through the legal implications and remains confident in his Buy rating and $90 price target on QCOM stock. (To watch Walkley's track record, click here)
Qualcomm has already filed its reply to judge Lucy Koh’s ruling on the 18th of June, and although the judge is expected to deny the appeal, Qualcomm can then appeal for a stay in the Ninth Circuit. This Ninth Circuit approach can spiral into a process that can take up to 2 years if the case reaches the US Supreme Court. Walkley believes that the Ninth Circuit will rule in Qualcomm’s favor because of the “irreparable harm to Qualcomm’s business model if not granted a stay during the appeal process.” A stay means that Qualcomm can continue its practice of charging mobile phone manufacturers a percentage of the final selling price before the litigation is settled.
Another factor that gives Walkley confidence in the Ninth Circuit Court of Appeals granting Qualcomm a favorable ruling is the mixed messages coming from the inner workings of the FTC. Rather than the normal five-member vote on whether a case should proceed, only three commissioners have voted, and the Commission is currently in a 2-2 deadlock on the decision. Walkley noted that “a current FTC commissioner, Christine Wilson, stated the legal theory was flawed and encouraged the higher courts to reconsider Judge Koh’s decision.” The appeals court will also take the public interest into consideration, and with Qualcomm’s immense 5G capability, a decision that damages Qualcomm’s business could hurt the wireless industry and the public interest.
All in all, with much uncertainty surrounding Qualcomm’s stock in the midst of constant litigation, there may be a sizeable opportunity for investors believe Qualcomm will come out of this litigation largely unscathed. TipRanks analysis of 24 analyst ratings show a consensus Moderate Buy rating, with 14 analysts saying Buy, nine suggesting Hold and only one recommending Sell selling. The average price target among these analysts stands at $85.29, which implies a 17% upside from current levels.
Read more QCOM:
- Qualcomm Faces Challenges, But the Stock Remains a ‘Buy’
- Owning Qualcomm Stock Should Be Worth the Noise, Says Morgan Stanley
- Susquehanna Remains Bullish on Qualcomm (QCOM) Stock as the Roller Coaster Ride Continues
- A Look at Qualcomm (QCOM)-FTC Outcome and Its Impact on Apple (AAPL)