Bernstein Downgrades Qualcomm Ahead Of Q3 Results

Bernstein downgraded QUALCOMM, Inc. QCOM to Market Perform from Outperform, citing that long-term growth isn't visible.

"Qualcomm has had a good run off the bottom over the last few months, and is now in the ballpark of our target price. Given we believe near-term estimates likely need to come down further and a continued hesitancy to sign up for a long-term growth story, we are finding it harder to pitch the stock with conviction here," analyst Stacy Rasgon wrote in a note.

As such, the brokerage downgraded Qualcomm, leaving its $55 target and estimates unchanged.

Rasgon's $55 target price represented the "no growth scenario" (i.e. a company that doesn't go into secular decline, but also never grows FCF again), "a scenario we still feel reasonably comfortable with."

The analyst noted the next few quarters are likely to be volatile, and long-term structural issues remain.

Commenting on the third quarter, Rasgon said while the current quarter looks "OK," Bernstein's analysis suggests consensus estimates for September quarter licensing appear aggressive; in fact the analyst's fourth quarter QTL revenue estimates appear about $150 million below the Street.

Qualcomm is expected to report its third quarter results on July 20. Street expects earnings of $0.97 a share on revenue of $5.57 billion.

For the fourth quarter, the current consensus seems to be modeling QTL licensing revenues of about $1.83 billion, roughly flat compared to the third quarter and consistent with normal seasonality.

"We speculate that consensus is adding in "catch-up" payments from Chinese OEMs, which suggests downside if deals don't come through, and limited opportunity for upside if they do," Rasgon said.

To become constructive on the stock again, the analyst needs "1) confidence in some sort of long-term growth story, and 2) comfort that estimates have bottomed."