Year-to-date, sitting 6% into negative territory, shares of Qualcomm (QCOM) have seriously underperformed the SOX and the S&P 500’s display; both have advanced nicely, with respective 18% and 16% upticks.
Deutsche Bank’s Ross Seymore puts the lackluster showing down to a “litany of near-term fears” and counts “inventory in China, Covid related demand weakness in India and supply shortages impacting ability to gain share in China,” as reasons why the stock’s performance has been weak.
There’s also the small matter of Apple announcing it plans to eventually build the modem for its devices, thereby stripping Qualcomm of a huge source of revenue, which has spooked investors.
However, Seymore thinks the latter becoming a reality is still a while away and in case there are solutions to mitigate the potential impact.
“While the longer-term risk of Apple producing its own modem is real,” the 5-star analyst said, “We believe it to be likely in 2H23 at the earliest and believe it can be largely offset by share gains within China (from Huawei ecosystem).”
In fact, more pertinently, Seymore thinks the problems which have beset the company in the year’s first half will turn to positives as the year progresses.
As inventory concerns subside, India demand normalizes, supply shortages continue to decrease, “typical seasonality becomes a tailwind” with a better-than-expected iPhone 13 launch in 2H and Qualcomm continues to see gains from the ramping of 5G networks (particularly in China), the analyst thinks a positive September quarter and C2H21 is in the cards.
There should also be assistance from the non-handset-related QCT business, with the IoT+Auto segments generating ~20% of total revenue, which Seymore expects to increase by 45 to 50% year-over-year in CY21.
“Overall,” the analyst summed up, “We believe this combination of near-term positives can allow QCOM shares to outperform in 2H21, especially relative to the majority of other names in the SOX that face increasing cyclical headwinds.”
Consequently, Seymore reiterated a Buy rating on the stock, and sticks to his $190 price target. Investors are looking at upside of 36% from current levels. (To watch Seymore’s track record, click here)
A glance at the consensus breakdown shows the Street has a variety of opinions regarding QCOM’s prospects, although the bulls remain in charge. Based on 9 Buys, 6 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. The average price target clocks in at $172.54, suggesting 12-month upside of 23.5%. (See Qualcomm stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
