Qualcomm Analysts Stay On The Sidelines Following Mixed Guidance

QUALCOMM, Inc. QCOM reported fairly strong fiscal-year 2020 first-quarter results, but the stock moved lower, apparently due to the warning regarding the Chinese coronavirus causing supply chain disruption and a probe launched by the EU antitrust watchdog related to its 5G chipset business.

The QCOM Analysts

Morgan Stanley analyst Joseph Moore maintained an Equal-Weight rating on Qualcomm shares and increased the price target from $90 to $92.

Wells Fargo analyst Timothy Arcuri maintained a Neutral rating and increased the price target for the shares from $87 to $91.

Constructive Longer Term, 2020 Essentially An In-line Year

Qualcomm is seeing a significant inflection in revenue per device on the chip side in the March quarter, driven by new phone models in the first quarter, mix shift to 5G and early ramps in RF content, Moore said in a note.

The June quarter results are likely to be flat but consistent with historic seasonality, the analyst added.

Slower infrastructure spending seen recently suggests there is unlikely to be an accelerated move to 5G but more of a gradual transition, Moore said.

The analyst said he would like to see much higher numbers than the 2022 operating margin target of 20% for the chip business, given the company's technology dominance and market share leadership.

Morgan Stanley said it is constructive longer term but sees 2020 as essentially an in-line year.

See Also: 3 Things To Drive Qualcomm's Outlook Over Next 2 Years

Hard To Argue Stock Is Materially Undervalued

The wobbly June quarter guidance dulls what was otherwise solid March quarter guidance, Arcuri said. Near-term, Qualcomm is seeing intense benefit from content/ASP step up as 5G initially penetrated the premium handset tier.

Arcuri expects modem ASP and RFFE content to grow, although more ratably even as iPhone starts to ramp for Qualcomm in September.

The commentary on licensing business assumes two sizable Chinese OEMs, with whom the company appears to be in extended negotiations, will successfully renew.

Wells Fargo said Qualcomm still appears on track to grow revenues about 20% in calendar year 2020, 30% in 2021 and about 10% in 2022, with a path to the same $7-$7.50 per year EPS for calendar years 2022-2023, assuming Huawei pays.

"….maintain that all 5G roads still lead through QCOM, but it is hard to argue the stock is materially under-valued," the firm concluded.

The QCOM Price Action

Qualcomm shares closed down 0.33% to $90.61.

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