Qualcomm Inc. shares ticked higher Thursday, after being weighed down following the chipmaker’s earnings report and settlement details with Apple Inc. late Wednesday, as analysts hiked price targets amid concerns about a slow smartphone market.
Qualcomm shares QCOM, +1.05% which had faced resistance in the after-hours session Wednesday, were last up 0.6% at $86.91, following an intraday high of $90.34. In comparison, the PHLX Semiconductor Index SOX, +1.09% was up 1.1%, while both the S&P 500 index SPX, -0.27% and the tech-heavy Nasdaq Composite Index COMP, -0.22% were down 0.2%.
Of the 25 analysts who cover Qualcomm, 17 have buy or overweight ratings, eight have hold ratings and none have sell ratings. Of those, 13 hiked their price targets while one lowered his, resulting in an average price target of $93.93, up from an average target of $84.67 before earnings.
For the third quarter, Qualcomm said it expects earnings of $3.57 to $3.77 a share on revenue of $9.2 billion to $10.2 billion a share, which includes the Apple settlement, expected to contribute $3.02 to $3.12 a share in earnings and $4.5 billion to $4.7 billion in revenue. Qualcomm said it expects adjusted earnings of 70 cents to 80 cents a share on revenue of $4.7 billion to $5.5 billion for the third quarter.
Before the outlook, analysts polled by FactSet had forecast an average earnings of $1.29 a share on revenue of $5.28 billion. Following the outlook, Wall Street revised the adjusted earnings average to 76 cents a share on revenue of $5.1 billion.
Heading into earnings, short-interest in Qualcomm shares jumped 76% to rank as the third-most shorted chip stock behind Microchip Technology Inc. MCHP, +1.16% and Advanced Micro Devices Inc. AMD, +5.50%
Raymond James analyst Chris Caso upgraded Qualcomm to a “strong buy” from outperform and hiked his price target to $115 from $85.
“Based on details from the release, we believe Apple’s licensing payment amounts to $7.50/phone, precisely in line with our view following the settlement announcement – and we believe very close to what Apple had been paying (net of rebates) prior to the dispute,” Caso said, adding that Qualcomm’s earnings power will only increase once a settlement with handset maker Huawei happens.
Qualcomm is still in a dispute with Huawei over royalty payments of its intellectual property.
UBS analyst Timothy Arcuri, who has a neutral rating and a $80 price target, said even with the Apple settlement results, Qualcomm’s guidance, especially on the its licensing business, or QTL, was “disappointing.”
Arcuri said the outlook was indicative of a “general soft handset market” and considered it a negative that while “QCOM/Huawei could be close to settling, we did not get any such confirmation on the call.”
Stifel analyst Kevin Cassidy, who has a buy rating, broke with the Street and lowered his price target, to $96 from $100, in a note entitled “Celebration Is Over; Back to Work on 5G Launch.”
Cassidy noted that Qualcomm now estimates 1.8 billion to 1.9 billion shipments of 3G/4G/5G devices globally in 2019, down from a previous estimate of 1.85 billion to 1.95 billion shipments.
“The lower guidance is being driven by continued weakness in China and longer handset replacement cycles, potentially due to a pause in buying before the 5G ramp,” Cassidy said.
Oppenheimer analyst Rick Schafer, who has a perform rating, said problems in the smartphone market are keeping him on the sidelines on Qualcomm’s stock.
“Settlement clears largest legal overhangs, though various regulatory rulings are still pending, including the FTC, which could impact the business model,” Schafer said. “Out-sized dependence on the challenged handset market keeps us sidelined.”
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