Year-to-date, 6% in negative territory, shares of Qualcomm (QCOM) the SOX and the S&P 500 display have seriously underperformed; both have made good progress, with 18% and 16% increases respectively.
Deutsche Bank Ross Seymore attributes the lackluster display to a “litany of near-term fears” and views “stock in China, Covid-related demand weakness in India, and supply shortages affecting the ability to gain market share in China” as reasons why stock performance were weak.
There’s also a minor matter of Apple announcing that it plans to eventually build the modem for its devices, depriving Qualcomm of a huge source of revenue, which has scared investors.
However, Seymore thinks the final reality is still a while away and whether there are any solutions to mitigate the potential impact.
“While the longer-term risk of Apple producing its own modem is real,” the five-star analyst said, “we believe this will be in the second half of 23 Huawei ecosystem at the earliest.”
In fact, Seymore believes the issues the company faced in the first half of the year will change for the better as the year progresses.
As inventory concerns ease, demand in India normalizes, supply shortages continue to ease, “typical seasonality turns into a tailwind” with a better-than-expected iPhone 13 launch in 2H, and Qualcomm continues to see gains from the build-out of 5G networks ( especially in China), the analyst thinks a positive September quarter and C2H21 is in the cards.
There should also be help from the non-handset QCT business, with the IoT+Auto segments generating ~20% of total revenue, which Seymore says will grow 45-50% year-over-year in CY21.
“Overall,” the analyst summed up, “we believe this combination of positives in the near term could see QCOM stocks outperform in 2H21, especially compared to most other names in the SOX dealing with increasing cyclical headwinds.”
As a result, Seymore reiterated a buy recommendation for the stock and is sticking to its price target of $190. Investors are expecting a 36% increase from current levels. (To view Seymore’s track record, click here)
A look at the consensus breakdown shows that the street has differing opinions on QCOM’s prospects, although the bulls remain in charge. Based on 9 buys, 6 hold and 1 sell, the stock has an average buy consensus rating. The average price target comes in at $172.54, suggesting a 12-month increase of 23.5%. (See Qualcomm stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.