Credit Suisse Lowers Qualcomm's Price Target, Calls It A 'Recovery Story For 2016'

• Shares of QUALCOMM, Inc. QCOM have declined 35.4 percent year to date, touching a low of $46.83 on December 14.
• Kulbinder Garcha of Credit Suisse has maintained an Outperform rating on the company, while lowering the price target from $73 to $67.
• Garcha believes that the stock is currently inexpensive, especially given expectations of several potential growth drivers for the company.

Analyst Kulbinder Garcha believes that “improved execution, a recovery at Samsung, rising revenue diversity and gradual compliance from Chinese vendors means that Qualcomm has approx. $5.61 of EPS power long term (CY17), making the stock inexpensive.”

However, Credit Suisse’s proprietary TAM analysis indicated that a smartphone slowdown is occurring and net adds are likely to contract going forward, declining from 735 million in 2015 to 420 million in 2020.

“While replacement volume will grow, we believe the acceleration will be more gradual,” according to the Credit Suisse report.

With Qualcomm expected to win back 50 percent for Samsung’s next flagship phone, while continuing to diversify into other business areas, QCT revenues and EBT are likely to beat expectations.

For QTL, gradual compliance building in China, which is likely to rise to 80 percent over time, could drive revenues from the current $7.7 billion to $8.5 billion in the long term.

“Combined, we see this driving CY17 EPS power of $5.61, vs. our current projection of $4.95,” the report added.