Nomura Securities Upgrades Qualcomm (QCOM) to Buy; NXP to Add a Ton of Scale
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Analyst Romit Shah highlighted:
- Qualcomm is buying a good business. NXPI will add a ton of scale, expand the TAM and open up new channels for Snapdragon. However, what really stands out is the accretion. We conservatively estimate that NXP will boost earnings, inclusive of stock compensation expense, by 30% to $6 per share in 2018. We believe this accretion will prove too substantial for investors to ignore.
- As such, we are upgrading QCOM to Buy and raising our price target from $55 to $80, based on a multiple of 13x 2018 eps of $6. The new target takes into account eps accretion of 30% and our expectation that the multiple improves by 1-2 turns. Comps such as AAPL, CSCO and INTC are trading at 11-12x 2018.
- It is worth noting that while QCOM is outperforming year-to-date, shares have lagged the sector and market over a longer time period (1, 3 and 5 years). We believe that among the top 15 largest institutional investors, Qualcomm is under-owned relative to other franchise names (AMAT, AVGO and TXN) in the space.
Shares of Qualcomm closed at $68.40 yesterday.
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