Party Time? Qualcomm Added To BofA's US1 List

• Shares of QUALCOMM, Inc QCOM are down 34 percent year-to-date and trading near their 52-week low of $47.52.
• BofA Merrill Lynch’s Tal Liani maintained a Buy rating on the company, with a price objective of $75. The company was added to the US1 List.
• Cost cuts, new semiconductor products, new deals in China and the completion of Qualcomm’s strategic realignment are expected to act as catalysts, Liani noted.

The recent weakness in Qualcomm’s shares provides an attractive buying opportunity, analyst Tal Liani believes. The company is expected to be a long-term beneficiary of the growing adoption of 3G/4G smartphone, tablet and cellular enabled machines.

“While QTL licensing revenues are decelerating, we expect the mix shift towards emerging markets to stabilize and the royalty rate to be supported for the foreseeable future as all-LTE and 5G networks are many years away,” Liani pointed out.

Upcoming catalysts that can boost Qualcomm’s performance include the potential for new deals in China in 2016, cost cuts to improve QCT margins, new semiconductor products and the completion of the company’s strategic realignment plan, Liani noted.

“We believe margin increases, trend stabilization, and the possible breakup should help unlock Qualcomm’s value in 2016,” the BofA Merrill Lynch report noted.

Liani mentioned that the price objective of $75 is based on 14x of the CY17 EPS estimate, a discount to the historical average multiple of 17x. The analyst termed the discount as appropriate in view of the lower growth of the smartphone market, an expected deceleration in licensing revenue growth and risk of lower share of LTE chipsets in 2015 and thereafter.