Qualcomm had a February earnings report that disappointed analysts and investors.
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For a company that makes chips essential to powering 5G technology, Qualcomm stock looks cheap. Consequently, Piper Sandler analyst Harsh Kumar upgraded the stock to a Buy, and raised his target price.
Shares of Qualcomm (ticker: QCOM) fell 2.1% to $128.87 in afternoon trading Thursday. The stock touched a record high Feb. 2, at $164.78 but has fallen the past three consecutive trading days.
Analysts and investors have expected Qualcomm, known for chips from smartphone processors to radio chips, to benefit as the world transitions to 5G networks. But, the company’s February earnings report card failed to meet analyst sales expectations, even during chip shortages that have temporarily limited production of goods such as cars, and the smartphones that partly underpin Qualcomm’s business.
In a client note Thursday, Kumar argued the valuation has tumbled enough to warrant investors’ renewed attention. He pointed out that the stock has fallen nearly 20% since its latest quarterly report, compared with the benchmark PHLX Semiconductor index, commonly called the Sox, which has retreated about 1% since the earnings report.
“Qualcomm is trading at a 5-year low relative to the SOX on a P/E basis, and the company is one of the cheapest in large/mega cap semiconductors,” Kumar wrote.
According to Kumar, Qualcomm is valued at 18.4 times forward earnings, compared with the Sox, which trades at 22.6 times earnings. Kumar raised his target price to $160 from $150, to reflect his thesis that the company should be trading closer to its peers in the index.
The issues with the share price are temporary, he argues, because of lofty investor expectations, and an unusual sales cycle because of delays in Apple (AAPL) product launches.
Cheap price aside, Kumar says the company’s business remains primed to take advantage of consumers upgrading or buying 5G smartphones. Kumar said he expects 5G handset sales to double in 2021, and grow nearly 50% in 2022.
Beyond the 5G chips, Qualcomm also has a thriving business selling semiconductors destined for gadgets related to the internet of things and that perform various functions in cars—both markets set to grow substantially in the coming years.
Qualcomm stock advanced 57% in the past year, as the Sox gained 58%. The S & P 500 index rose 22% in the same period.
Write to Max A. Cherney at [email protected]
