Analysts at JPMorgan upgraded shares of QUALCOMM, Inc. (NASDAQ: QCOM) from Neutral to Overweight with a price target boosted from $50 to $68 as the
company's proposed acquisition of NXP Semiconductors NV (NASDAQ: NXPI) will generate "material fundamental upside."
According to JPMorgan's Rod Hall, the acquisition of
NXP Semiconductors by Qualcomm represents a transaction that is highly accretive. Specifically, the analyst calculated 57
percent earnings accretion for Qualcomm. Moreover, the company priced senior unsecured notes just last week at an effective
interest rate of 2.67 percent, which was better than what the analyst had used in his valuation models.
Apple Dispute
Hall argued that Qualcomm's favorable interest rate suggests that the company still has good access to the debt market despite
an ongoing
dispute with Apple Inc. (NASDAQ: AAPL). However,
this doesn't erase the headline risk from the ongoing dispute but the analyst does believe Qualcomm's stock is "discounting a significant amount of this risk now."
Hall also suggested that Qualcomm's next logical step would be requesting a trade injunction against Apple's contract
manufacturers but this will be complex and lengthy.
Nevertheless, the analyst believes Apple still sees Qualcomm's baseband capabilities as "valuable," and Apple also believes in
an "environment of fair compensation for innovation." As such, Qualcomm and Apple will eventually reach a resolution in the future
although no time line was suggested.
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