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The Ratings Game: Qualcomm stock streaks past $100 as Huawei settlement clears last barrier to 5G licensing

August 01
21:52 2020

Qualcomm Inc.’s stock price soared past its former high of $ 100 set two decades ago on Thursday after the chip maker revealed it settled a licensing dispute with the world’s largest smartphone maker, clearing the way as the new 5G standard rolls out.

Qualcomm QCOM, -1.47% shares set an intraday record price of $ 107.40 Wednesday, topping its former high of $ 100.00 set on Jan. 3, 2000, just before the dot-com crash. After that, the closest the stock came to $ 100 was $ 95.91 on Jan. 17. Shares were last up 15% at $ 106.84 In Thursday trading.

In addition to topping Wall Street earnings estimates for the quarter on Wednesday, Qualcomm announced a long-awaited patent-license settlement with Huawei that it had been teasing as far back as a year ago when it recorded results of a settlement with Apple Inc. AAPL, +10.46%

Of the 29 analysts who cover Qualcomm, 18 have buy or overweight ratings, eight have hold ratings, and three have sell ratings. Of those, 18 hiked their price targets resulting in an average price target of $ 113.24, up from a previous $ 98.48, according to FactSet data.

Late Wednesday, it was also revealed that China’s Huawei had surpassed South Korea’s Samsung Electronics Co. 005930, -1.86% as the world’s largest supplier of smartphones because of supply disruptions brought on by the COVID-19 pandemic.

Susquehanna analyst Christopher Rolland, who has a positive rating on Qualcomm and hiked his price target to $ 125 from $ 110, in a note titled “Huawei…Out.a.the.wei,” called the settlement the “star of the show” in Wednesday’s earnings report.

In addition to the $ 1.8 billion payment of back royalties, Rolland estimates Huawei will pay $ 200 million to $ 250 million in Qualcomm technology licensing, or QTL, royalties per quarter.

“Beyond the Huawei settlement, COVID continues to negatively affect global handset units, although the high-end and 5G segment continue to grow, helping to support Qualcomm’s profitability,” Rolland said.

Cowen analyst Matthew Ramsay, who has an outperform rating and hiked his price target to $ 130 from $ 115, said the Huawei settlement unlocked about a $ 1 or more a share of earnings “from purgatory.”

“With all major global OEMs now licensed for 5G, the QTL business model doubts should be firmly cast aside,” Ramsay said.

J.P. Morgan analyst Samik Chatterjee, who has an overweight rating and raised his price target to $ 120 from $ 108, said Qualcomm’s leadership in 5G technology ahead of the rollout was “pivotal” to the settlement.

“Moreover, reaching an agreement with Huawei against the backdrop of heightened tensions between US and China, as well as recent US restrictions cramping HiSilicon’s ability to access 5G chipsets, we believe is going to lead to expectations for a bull case around potential Qualcomm 5G shipments to Huawei in the future to support its smartphone launches,” Chatterjee said.

Oppenheimer analyst Rick Schafer, who has a perform rating on Qualcomm, said that will all the positives of the settlement, he remains on the sidelines.

“We see additional risk to QTL from uncertainty in 5G smartphone sales given challenged consumer discretionary spending and potentially adverse FTC ruling,” Schafer said.

Qualcomm shares are up 21% for the year, compared with a 16% gain in the PHLX Semiconductor Index SOX, -0.51%, an 18% gain for the tech-heavy Nasdaq Composite Index COMP, +1.48%, and a 0.6% rise by the S&P 500 index SPX, +0.76%.

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