QCOM: Barclays, Bernstein See Upside
Shares of wireless chip maker Qualcomm ( QCOM ) get two thumbs up today. Barclays Capital's Jeff Kvaal this morning reiterates an Overweight rating on the shares while raising his price target to $75 from $72, writing that his "checks" indicate "healthy" demand for smartphones last quarter, and increasing chipset share for Qualcomm. Probably, China and Europe helped to boost handset shipments overall to 395 million in Q1, higher than his prior 395 million unit estimate, he writes, with more of those being smartphones than he'd previously expected. "Key customers Apple ( AAPL ) and Samsung Electronics ( 005930KS ) are capturing the upside and balancing Research in Motion's ( RIMM ) losses," he writes. And Qualcomm is "anxiously confirming 28-nanometer capacity for the June quarter" for the roll-out of its " 8960 " chipset, he writes. That caused Kvaal to increase his chipset shipment estimates for last quarter and this quarter to 152 million and 156 million from 150 million and 152 million, respectively. Kvaal's Q2 EPS estimate rises to $1.07 from $1.06, while his Q3 estimate rises to $1.02 from $1. His fully-year estimate now goes to $4.30 from $4.19. Meantime, Bernstein Research's Stacy Rasgon this morning reiterates an Outperform rating on the shares and a $75 price target, in a think piece exploring the " dream" scenario for the company: Circumstances that could produce another $3 in profit per share come 2015, on top of the $5.18 per share he's already been modeling for that year. Writes Rasgon, "There are a number of potential sources of upside that are not (yet) included in our model. We have preferred to look at many of these as simply that (e.g. upside)."

Shares of wireless chip maker Qualcomm (QCOM) get two thumbs up today.

Barclays Capital’s Jeff Kvaal this morning reiterates an Overweight rating on the shares while raising his price target to $75 from $72, writing that his “checks” indicate “healthy” demand for smartphones last quarter, and increasing chipset share for Qualcomm.

Probably, China and Europe helped to boost handset shipments overall to 395 million in Q1, higher than his prior 395 million unit estimate, he writes, with more of those being smartphones than he’d previously expected.

“Key customers Apple (AAPL) and Samsung Electronics (005930KS) are capturing the upside and balancing Research in Motion’s (RIMM) losses,” he writes.

And Qualcomm is “anxiously confirming 28-nanometer capacity for the June quarter” for the roll-out of its “8960” chipset, he writes. That caused Kvaal to increase his chipset shipment estimates for last quarter and this quarter to 152 million and 156 million from 150 million and 152 million, respectively.

Kvaal’s Q2 EPS estimate rises to $1.07 from $1.06, while his Q3 estimate rises to $1.02 from $1. His fully-year estimate now goes to $4.30 from $4.19.

Meantime, Bernstein Research’s Stacy Rasgon this morning reiterates an Outperform rating on the shares and a $75 price target, in a think piece exploring the “dream” scenario for the company: Circumstances that could produce another $3 in profit per share come 2015, on top of the $5.18 per share he’s already been modeling for that year.

Writes Rasgon, “There are a number of potential sources of upside that are not (yet) included in our model. We have preferred to look at many of these as simply that (e.g. upside).”

“However, as the stock continues to outperform (and, indeed, draws closer to our target price), it becomes prudent to begin examining and sizing some of these potential further opportunities in greater detail.”

Potential upside sources include the growth of 4G “long term evolution,” or LTE, wireless, the expansion of the tablet computer market, the success of computers running Microsoft‘s (MSFT) Windows on ARM Holdings (ARMH)-based chips, or “WARM,” success at customer Nokia (NOK), and various changes the company itself might make to its priorities.

As Rasgon writes of the WARM scenario in particular,

Our current model incorporates zero upside for Qualcomm from Windows- on-ARM PCs, although the company is making sizeable investments in the area and is bullish. We size potential upside using bull-case forecasts for WOA PCs2, and believe the opportunity could represent as much as $0.42 in upside vs. our current model.

As for Nokia, Rasgon assumes they “continue to circle the drain,” which is actually favorable because they pay Qualcomm a lower royalty rate for wireless technology. But should Windows-based phones become 30% of the smartphone market, with Nokia owning 40% of that, estimates Rasgon, it could mean another 23 cents per share in profit come 2015.

Among the changes Qualcomm could make would be to “shutter Mirasol,” the company’s effort to promote a paper-like display technology that is competing with the widely used “e-ink” displays in e-book readers. That could add another 20 cents a share in profit.

Also, if the company used cash for buybacks, it could add a lift:

We do not know whether corporate tax reform will become a reality or not over the next few years. However, modeling our incremental cash generation (tax-adjusted) going to buybacks instead of simply building up on the balance sheet (e.g. leaving cash flat at today’s levels) would yield an additional $0.54, or more, in upside to our 2015 model.

Qualcomm shares today are down 16 cents at $67.23.

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