Could this week’s massive move higher be the start of a larger rally?
That echo you heard on Tuesday was the collective jaw-drop following the announcement that Apple (NASDAQ: AAPL) and Qualcomm (NASDAQ: QCOM) had signed a truce agreement ending the yearslong patent dispute between the two companies.
The news broke Tuesday afternoon, instantly sending Qualcomm’s stock soaring. By market close on Tuesday, shares were up 23%. As of this writing, the stock is up nearly 41%.
Such a sudden move felt like one for the history books, and Qualcomm now joins a shortlist of 18 stocks that have seen 20%+ one-day surges in the past two years.
So far in 2019, just five stocks have risen so sharply, including Celgene (NASDAQ: CELG) on the announcement of it being acquired by Bristol-Myers Squibb (NYSE: BMY), Hanesbrands (NYSE: HBI), Mattel (NASDAQ: MAT), and Coty (NYSE: COTY) on earnings surprises, and just last week, Anadarko Petroleum (NYSE: APC) after headlines that it was being acquired by Chevron (NYSE: CVX).
With Qualcomm now well above its 52-week high, and trading at its highest level in nearly 5 years, several analysts have upgraded the stock. In total, twelve analysts upgraded the stock and/or raised their price targets for it on Wednesday.
“We believe the removal of the legal overhang, which had persisted for the last two years, allows investors to focus on Qualcomm’s core businesses which will drive a higher valuation in addition to higher earnings power,” wrote Stifel’s Kevin Cassidy, who raised his rating on the stock to a Buy and set a price target of $100 – 25% higher than the price Thursday morning.
Cassidy says Qualcomm is the “clear leader” in 5G modem technology, which he anticipates will ramp up in the second half of this year and into 2020.
JPMorgan’s Samik Chatterjee gave the stock an Overweight rating, and says the Apple-Qualcomm agreement looks “overwhelmingly positive” for the chipmaker. While there still isn’t much detail on the deal, Qualcomm did say that it expects an additional $2 in earnings per share as a result of the agreement reached with Apple.
Evercore ISI upped Qualcomm to an Outperform, and its analyst said they are “incrementally more positive [on the stock] following Apple win and 5G win.” According to Evercore, between what Qualcomm will see from the Apple agreement, and with additional licensing revenue from companies like Huawei, the company could see “normalized earnings” of between $6.50 and $7 annually by 2021.
Other experts weighed in as well, including Cerity Partners’ Jim Lebenthal who sees a huge runway for Qualcomm’s stock.
“I think you stick with this stock,” Lebenthal said on Wednesday. “I do understand that it’s up something like 33% in two days, but fair value to me on this stock is $96 a share. …But what happened yesterday validated… the high-margin [intellectual property] model that Qualcomm has depended on for 25 years. That deserves a much higher multiple.”
Lebenthal also noted that the fight between Qualcomm and Apple wasn’t a first. “For people who know this stock over the last 20 years, this Apple issue isn’t the first time they’ve been challenged on this. You go back to Broadcom 15 years ago; same thing happened. You had Samsung, you had countries, whether it’s Korea, China [or] the U.S. right now. This model has been tested again and again and again and they always come out on top. That’s why I love this stock at $50, but $96, 25% higher? I see that by summer.”
“I think that there’s the possibility here of this stock having a multi-year move like it did in 1999,” said CNBC’s Jim Cramer. “I think 5G is not a one-time pop. … And the reason why that is is Qualcomm owns it. They own 5G, they’ve got the right chips. And now that the biggest obstacle is clear, I think Qualcomm can have a much bigger move than it’s already had.”
Whether or not this week’s jump is the beginning of a multi-year rally remains to be seen, but Wall Street agrees, this stock is a Buy and could be headed much higher.