Concerns on QUALCOMM, Inc. (NASDAQ:QCOM)’s Royalty Business Are Overblown

Concerns on QUALCOMM, Inc. (NASDAQ:QCOM)’s Royalty Business Are Overblown


QUALCOMM, Inc. (NASDAQ:QCOM) indicated that payments are held back by suppliers of Apple Inc. (NASDAQ:AAPL) thus raising concerns on the risks to royalty business of the chipmaker. However, CFRA believes that the concerns are overblown and is optimistic about the company’s prospects in the mobile sector.

QUALCOMM has not only delivered better than expected earnings and revenue for the second quarter but also offered outlook for the third quarter that is in line with its tradition. However, CFRA analyst Zino reduced his price target on the company’s shares from $70 to $66 implying more than 20 percent upside potentials from the current levels. The brokerage, however, retained its Buy rating on the stock.

The analyst pointed out that the price objective is reduced based on below peers PE of 14.3X his fiscal year ending September 2018 EPS estimate citing legal issues with iPhone maker, as well as, regulators. He kept his fiscal year 2017 EPS estimate at $4.59 and adjusted next fiscal year EPS view from $4.76 to $4.63.

In a research note to clients, Zino viewed, “We are optimistic about mobile demand in China and globally, earnings potential from the pending NXP Semiconductor deal (NXPI 104 ***), and data center penetration. Despite payments held back by AAPL suppliers and risks to QCOM’s royalty business, we think concerns are overblown.”

While releasing results, QUALCOMM’s CEO, Steve Mollenkopf, stated, “Our performance reflects continued execution of our strategy to lead the mobile industry across a broad set of technologies, including advanced LTE and 5G, and accelerate our growth opportunities beyond mobile into automotive, IoT, security and networking.”
The chipmaker delivered earnings of $1.34 a share on revenue of $6 billion for the second quarter exceeding analysts’ estimates of $1.20 a share and $5.89 billion revenue.

At time of writing this, the stock gained 1.6 percent in pre-market on Thursday.