QUALCOMM, Inc. (NASDAQ:QCOM), one of the pioneers of the cellular commination, appears to be in crisis. The stock has lost about a third of its value since 2014. But taking a closer look reveals that QUALCOMM, Inc. (NASDAQ:QCOM) still has substantial growth potential. In the first fiscal quarter of 2017, Qualcomm earned $1.19 per share on $5.99 billion revenue, versus the consensus estimate of $1.18 EPS and $6.12 billion revenue. For the second quarter, QUALCOMM, Inc. (NASDAQ:QCOM) expects to earn EPS of $1.15-$1.25, versus the consensus of $1.20, while revenue in the quarter is expected to come in at $5.5-6.3 billion, compared to the Street’s forecast of $5.9 billion.
QUALCOMM, Inc. (NASDAQ:QCOM) has increased its dividend at an annual rate of 16.5% over the last 10 years.
Morningstar has a ‘Narrow-Moat’ rating for Qualcomm and thinks that company is undervalued. The firm has a price target of $68 for the stock. Investment research company Value Line gave the highest safety rating to QUALCOMM, Inc. (NASDAQ:QCOM) (1 out of 5) in December 2016. The firm projects that the stock price of the semiconductor company will touch $90-110 in the next 3-5 years.
NXP: A Game Changer?
QUALCOMM, Inc. (NASDAQ:QCOM) will complete its $38.5 billion acquisition of NXP in 2017. NXP makes chips for connected vehicles, IoT devices and embedded applications. NXP will boost Qualcomm’s growth, and help it cut costs and pricing pressure, which are taking a toll on the company’s profit margins due to the declining PC market growth. Qualcomm will diversify its business portfolio and tap into the trillion dollar market of IoT using NXP’s expertise. NXP also makes secure credit cards, which are in high demand around the world amid increasing hacking attacks on payment networks. QUALCOMM, Inc. (NASDAQ:QCOM) and NXP will have a combined annual revenue of about $30 billion.
Qualcomm’s Patenting Troubles
Apple’s lawsuit against Qualcomm has damaged the company’s shares value. In January, Apple filed a $1 billion lawsuit against Qualcomm for allegedly withholding over $1 billion for patents on which the company has no rights. Earlier this year The Federal Trade Commission (FTC) charged Qualcomm for antitrust licensing practices.
Mobile Industry Potential
Total 3G/4G connections using CDMA technology, which is primarily developed and licensed by Qualcomm, are expected to increase to 6.4 billion by 2020. The mobile industry is expected to grow at a healthy pace over the coming years. But there are new competitors in the town, including Broadcom Ltd (NASDAQ:AVGO) and Texas Instruments Incorporated (NASDAQ:TXN). Intel, the biggest competitor of QUALCOMM, Inc. (NASDAQ:QCOM) entered a deal with Apple last year to supply chips for Apple phones. Before that, Qualcomm was the only chip market for Apple devices. Over 57% of Qualcomm’s revenue comes from China and Hong Kong, where the company has faced several patent lawsuits. This revenue stream is also under threat amid Donald Trump’s hostile trade policy towards China.
Last month, Morgan Stanley lowered its price target for QUALCOMM, Inc. (NASDAQ:QCOM) to $60 from $65, on the back of recent lawsuits.