Merrill Lynch Says Qualcomm Stock is Cheap After Recent Selloff

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Qualcomm (NASDAQ: QCOM) for the longest time was a relatively uneventful large-cap stock. Recent news regarding an agreement with Apple (NASDAQ: AAPL), however, changed that completely as shares of the company surged by over 50 percent in a handful of days.

Recently, shares have plummeted back down with Wednesday seeing a decline in over 11 percent due to an adverse decision from a federal judge. However, one analyst at a major investment bank has gone on to say today that they thought the stock was significantly undervalued.

Qualcomm fell around 11 percent on Wednesday after a U.S. court ruled in favor of the Federal Trade Commission in an antitrust lawsuit against the major chip manufacturer.

The decision follows an agreement made between Qualcomm and Apple in mid-April to supply chipsets to the company. The deal included a payment from Apple to Qualcomm and official ended what was a prolonged legal battle between the two.

However, this new license agreement is under question again as a ruling from U.S. District Court Judge Lucy Koh said she sided with the Federal Trade Commission, claiming that Qualcomm was charging excessive royalties for its patents and unlawfully hurting competition. As such, the judge ordered Qualcomm to renegotiate its licensing agreement with Apple.

In an emailed statement, Qualcomm said it would seek an appeal with the U.S. Court of Appeals, saying that “We strongly disagree with the judge’s conclusions, her interpretations of the facts and her application of the law.” As it turns out, many Wall Street analysts agree with the company’s perspective, arguing that the Judge’s ruling wasn’t entirely accurate. Bank of America Merrill Lynch analyst Tal Liani added on Thursday that “While Judge Joh’s decision has gone against QCOM, in our opinion it only marks the beginning of a potentially long legal journey. In fact, we believe Qualcomm’s relative loss yesterday could accelerate the potential for a settlement with the FTC.”

Liani reiterated his ambitious $105 target price for Qualcomm stock, doubling down on his “buy” rating for the company. At current price levels, this represents a 57 percent upside for the stock.

He also added that he didn’t think there was much risk that Qualcomm’s existing licensing partners would cease paying royalties from the recently completed contract renegotiation’s and that “we expect the dust to settle in the next few days.”

This opinion seems to be shared by most wall street analysts, with 17 having a “buy” rating according to MarketBeat, while just nine have a “hold” and “one” has a sell. Shares of Qualcomm dipped a further 1.5 percent on Thursday’s trading session after seeing a massive decline on Wednesday.

Qualcomm Company Profile

Qualcomm develops and licenses wireless technology and also designs chips for smartphones. The company’s key patents revolve around CDMA and OFDMA technologies, which are standards in wireless communications that are the backbone of all 3G and 4G networks.

The firm is poised to be a leader in 5G as well. Qualcomm’s IP is licensed by virtually all wireless device makers. The firm is also the world’s largest wireless chip vendor, supplying many premier handset makers with leading-edge processors. – Warrior Trading News

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