From Disappointment To Modest Optimism: The Street Is Mixed On Qualcomm

• Shares of QUALCOMM, Inc. QCOM were trading lower by around 1 percent Wednesday morning.
• Qualcomm's management confirmed it will maintain its existing corporate structure.
• The company also reaffirmed a prior commitment to return 75 percent of free cash flow, which will allow greater flexibility for potential M&A activity.

Shares of Qualcomm were lower by around 1 percent Wednesday morning after the company's management announced it would keep its existing corporate structure rather than breaking up the company.

The company will maintain its structure based on expectations that it will benefit from synergies. These synergies will come from a combined QCT (Qualcomm CDMA Technologies) and QTL (Qualcomm Technology Licensing) in areas such as R&D, IP, tax and cost perspectives.

Qualcomm's management also reaffirmed a prior commitment to returning 75 percent of its free cash flow, which will allow a greater flexibility for potential M&A activity.

Finally, the company also raised its first quarter 2016 earnings per share guidance to $0.90, modestly above its prior guided range of $0.80.

Here is a roundup of what some of Wall Street's top analysts are saying.

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Pacific Crest: Buyers Of Qualcomm

Michael McConnell of Pacific Crest commented in a note that he "would be buyers" of Qualcomm following the company's announcement to maintain its corporate structure. The analyst justified his position with three key points: 1) the stock's valuation appears to "discount the midpoint" of QTL guidance for fiscal 2016 with "no value ascribed" for the QCT segment, 2) "catch-up" QTL sales could add $0.32 in earnings per share and 3) sales and margin "seem likely to trough" in the second quarter 2016.

McConnell added that the company's decision to maintain its structure also "increases the probability" that it will be active on the M&A front and/or increase capital returns given its strong net cash position of $12.70 per share.

Shares remain Overweight rated with a price target raised to $65 from a previous $64.

Credit Suisse: Qualcomm Is A ‘Recovery Story' For 2016

Kulbinder Garcha of Credit Suisse commented in a note that Qualcomm's decision to maintain its corporate structure won't improve the fundamental outlook from an industry total addressable market perspective. However, the analyst suggested that an "improved execution," a "recovery" at Samsung and rising revenue diversity imply the company has around $5.61 of earnings per share power over the long term.

Garcha added that Qualcomm's stock is trading at a P/E (ex-cash) of 7x, which makes it "inexpensive." In addition, a "significant" stock buyback and QTL licensing uptick are further potential "positive drivers for growth." On the other hand, the analyst acknowledged that it "may take time" for the company and the stock to "repair."

Shares remain Outperform rated with a price target lowered to $67 from a previous $73 to account for a "maturing smartphone market."

JPMorgan: Strategic Review Was ‘Disappointing'

Rod Hall of JPMorgan commented in a note that Qualcomm's announcement was "disappointing" as it "failed to provide any further clarity" on how the company plans to tackle key strategic issues that the QCT segment faces.

Hall suggested that adding "significantly" more scale to Qualcomm's chip business while simultaneously diversifying away from mobile "is the way to go."

Hall also stated that Qualcomm's revised earnings estimates were done so against an already "very cautious" guidance. In fact, the analyst noted that his own forecast was already at the top end of the prior guidance range.

Finally, Qualcomm's management stated that there is no need to lever up the balance sheet, as the QCT segment has sufficient scale. The analyst argued that this thinking indicates management "may not understand the degree to which investors believe the company needs to scale QCT up and diversify away from mobile devices."

Shares remain Neutral with an unchanged $57.50 price target.