Is QUALCOMM, Inc. stock a good long-term buy now?
Shares of San Diego, California-based smartphone chipmaker QUALCOMM, Inc. (NASDAQ:QCOM) are up by more than 9% in the last one month. QCOM stock seems to be in recovery mode after the lawsuits driven sell-off in January. To add to that Qualcomm had posted mixed Q1-2017 earnings which further spooked investors. Investors have been staying away from QCOM stock due to the legal risks which the company faces. However, this recent pullback could be a good buying opportunity for long-term investors. Let's take a closer look at Qualcomm's prospects to see if it's sensible to buy QCOM stock now with legal issues still unresolved.
What Are The Analysts Saying?
Many on the Street believe that legal risks have been priced into QCOM stock. A Barrons post states that according to Pacific Crest Securities, the Apple lawsuit could take two years to settle. They are also of the view that majority of the risks associated with the Apple dispute are priced in. Pacific Crest Securities models a price-target of $72 for QCOM stock taking into account loss of business from Apple, in case it happens. And their bear case price target is of $53. They are also quick to state that Qualcomm stock has no near-term catalysts since the NXP acquisition may happen only in late 2017 and lawsuit disputes could take a longer time to get resolved. However, they think the recent pullback presents a good buying opportunity for long-term investors.
Even Canaccord’s T. Michael Walkley is also of a similar view and reiterated a buy rating on QCOM stock recently. Mr. Walkley opines that the litigation against the smartphone chipmaker is motivated by Apple's (NASDAQ:AAPL) intention to lower its license payments. He has a price target of $76 on QCOM stock and still considers Qualcomm an attractive long-term investment. According to him, the growing royalty fees collection from Chinese OEMs and the impending NXP Semiconductor (NASDAQ: NXPI) acquisition, which is on track as per him, are the long-term growth drivers for QCOM stock.
NXP Acquisition Progress.
Qualcomm has further extended the offer period for cash tender of shares of NXP Semiconductors. As analysts suggest, this is not going to be the last renewal of the tender offer. The percentage of tendered shares increased to 17.2% from 14.8% in early February, a slow progress indeed. Most analysts still believe that the merger is on track, even though it has seen slow progress. Qualcomm is still far from collecting the required minimum of 80% of NXP's outstanding shares. Qualcomm's press release states that "The tender offer will continue to be extended until all conditions are satisfied or waived, or until the tender offer is terminated". The company remains committed to close the deal by the end of the calendar year 2017.
More Positive News Coming In From Qualcomm.
Qualcomm in its recent investor presentation held on March 7th reaffirmed that its QTL segment is on track and stated that it expects to ship 1.75B-1.85B 3G/4G devices in 2017, an increase of 7% from 2016. The world's largest smartphone chipmaker also had an eventful time at the Mobile World Congress 2017 where it showcased its latest 5G technologies and fresh demos of its latest flagship 835 processor. But the real deal was yesterday. At the Open Compute Project (OCP), Qualcomm announced a collaboration with Microsoft (NASDAQ:MSFT) to power Microsoft's Azure cloud and other internal services using their ARM-based 10nm Centriq 2400 processor. This is a shot in the arm for Qualcomm's data center business, with Microsoft, owner of some of the biggest data center infrastructure in the world, throwing its weight behind it. Qualcomm's data center effort seems to be paying off, and its diversification plans seem to be on track. The data center segment is also one of the better segments to target as it is expected to grow massively in the next few years, unlike the PC and smartphone segments. Stacy Rasgon, an analyst at Bernstein Research, wrote in a recent note that Intel's data center business "is beginning to crack". Industry experts believe that this collaboration is likely to help Qualcomm pose a formidable challenge to Intel’s dominance in the data centers space.
Qualcomm Stock Is A Good Long -Term Investment.
Qualcomm's product line-up highlights the immense growth opportunities ahead of it irrespective of the legal risks the company is facing. The NXP acquisition is also on track even though progress has been slow. The recent pullback does indeed present a good buying opportunity for long-term investors. To add to that QCOM stock pays regular dividends and has a dividend yield of 4%. Qualcomm has recently increased the quarterly dividend by 7.5% to $0.57 per share from $0.53. Qualcomm's fundamentals remain the same, and the legal risks, as believed by many, seem to have been priced in. It would be wise for long-term investors to initiate at least partial positions in QCOM stock now, and build on any further pullbacks, as aspects of the NXP deal and lawsuits become clear.
QCOM stock is part of our Top Stock Picks from the technology sector, which have outperformed the NASDAQ by over 130%.