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Qualcomm Valuation Not Taking Guidance Into Account; Pacific Crest Is Going Overweight

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Shares of QUALCOMM, Inc. (NASDAQ: QCOM) have been trending southwards in 2015 and are down 31 percent year-to-date.
Pacific Crest's Michael McConnell initiated coverage of the company with an Overweight rating and a price target of $64.
QCT sales and margins are expected to bottom in F2Q16, McConnell stated.

Analyst Michael McConnell mentioned that Qualcomm's current valuation appears to discount the midpoint of Qualcomm Technology Licensing [QTL] guidance for F2016 with no value ascribed for the company's CDMA technologies [QDT].

"We are modeling QTL revenue to grow by 3% in C2016 (-4% in F2016), with segment revenue and FCF growing by a low- to mid single-digit percentage in C2017 to C2020," McConnell wrote.

The analyst expects QCT fundamentals to bottom in F2Q16 due to share gains for Samsung's upcoming GS7, cost reduction of $600 million in this fiscal year and more moderate chipset ASP declines, as the Chinese market transitions to a more "profitable smart phone replacement market."

Qualcomm is carrying out a structural/financial review with options like the separation of the QTL and QCL businesses, a material increase in shareholder returns and M&A being considered. McConnell believes that any of these options could result in a meaningful share price appreciation.

"Our target does not include upside from estimated QTL catch-up earnings of $0.32 from China licensees or QTL sales above the midpoint of company guidance for F2016," the Pacific Crest report stated.

Latest Ratings for QCOM

Oct 2016RBC CapitalMaintainsSector Perform
Sep 2016MizuhoUpgradesNeutralBuy
Sep 2016Argus ResearchMaintainsBuy

View More Analyst Ratings for QCOM
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Posted-In: Michael McConnell Pacific CrestAnalyst Color Long Ideas Initiation Analyst Ratings Trading Ideas


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