Goldman Sachs Sees 25% Upside In Qualcomm, Adds To Conviction List

QUALCOMM, Inc. QCOM reported its first year-over-year revenue growth in four quarters. Goldman Sachs’ Simona Jankowski maintained a Buy rating on the company, while raising the price target from $64 to $70. She also added the stock to the Conviction List.

Qualcomm’s quarterly revenues were driven by a strong chipset product cycle, higher low-end smartphone demand, and recovery of royalties in China, Jankowski mentioned. She expects Qualcomm’s revenue growth to accelerate into FY17, as the company gains share at Samsung and Chinese OEMs. These share gains are likely to offset iPhone share loss.

Related Link: Credit Suisse Regains Confidence In Qualcomm, Raises Price Target To $70

Qualcomm’s revenues are also likely to be boosted by higher royalty collections in China. Jankowski added that Qualcomm’s return to revenue growth, coupled with cost cuts of $700mn, should result in operating margin expansion from 33 percent in FY16 to 36 percent in FY17.

Powerful Reversion Story

The latest quarter marked the beginning of “an upward estimate revision cycle,” following a couple of years of downward revisions, the analyst noted. She stated further, “With several strong new chipset product cycles Qualcomm has regained leadership at the high end (e.g. Samsung) as well as the mid-range (with Chinese OEMs).”

The Street estimates reflect declining units and flat ASPs, “which we think fails to account for Qualcomm’s stronger product portfolio and the positive mix shift,” Jankowski wrote. The EPS estimates for FY16, FY17 and FY18 have been raised from $3.41 to $3.66, from $4.29 to $4.43 and from $4.79 to $4.95, respectively.

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