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Bull of the Day: Qualcomm (QCOM)

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Qualcomm (QCOM - Free Report) is the $150 billion pioneer in Code Division Multiple Access (CDMA) technology. They've been keeping iPhones great again, and again, for many years.

The Apple (AAPL - Free Report) and QCOM relationship wasn't always friendly, but they've worked out their differences enough to get to #13.

And as the 5G rollout expands capabilities around the globe, QCOM's fortunes have risen. That's why it's back in the upper realms of the Zacks Rank.

Beat-and-Raise Quarter

Following its Q3 report on July 28, analyst confidence in the resurgence of handset chip markets was clear. As global smartphone supply-chain constraints eased, most felt the company was well positioned to benefit from the long-term 5G investment cycle.

I'll show you some of the commentary and price target boosts, but first let's look at what revised earnings estimate revisions did to the profit outlook.

The fiscal 2021 consensus (ends in September) moved up 5.8% from $7.80 to $8.25 EPS, representing a +97% snapback in growth. And fiscal 2022 was bumped 6.5% from $8.57 to $9.13 EPS.

Meanwhile, topline growth is over 40% for this year and is projected to hit $36.5 billion next year, for a 10.5% advance.

Analysts Are Bullish

At KeyBanc, analyst John Vinh raised the his price target on Qualcomm to $190 from $180, noting that despite concerns regarding licensing weakness in QTL, Qualcomm posted strong results and guidance, which were above expectations as QTL benefited from a favorable mix.

And in the QCT segment (QCOM CDMA Technologies are 80% of company revenues), upside was due to stronger than expected RFFE and IoT revenues. Vinh was encouraged to see RFFE, auto, and IoT now represent 40% of QCT, showing the company's increasing diversity. The analyst also liked management's expectations for material improvement in capacity to drive a strong second half of the year outlook.

Right after the report on late July, Bank of America and Canaccord Genuity analysts both raised their price targets to $200.

Then August 12, Canaccord analyst T. Michael Walkley raised the firm's price target on Qualcomm to $225 from $200. The analyst remains bullish about Qualcomm maintaining strong QCT EBT margins, diversifying revenue growth, and maintaining its strong leadership position.

At Baird, analyst Tristan Gerra added Qualcomm to the firm's top large-cap idea list, citing the view that the company is "at the center of the coming Industrial 4.0 revolution" and should benefit from improved wafer availability in the second half of 2021. As of August 11, Gerra had an Outperform rating and $200 price target on QCOM.

Some Resistance to New Highs

I bought QCOM shares for the Zacks TAZR Trader portfolio in June near $135 because I saw strong value in this pivotal 5G growth resurgence.

After the Q3 report, I was definitely looking forward to challenging the old highs above $160. But then Google announced on August 2 that they were dropping QCOM chips for phones and making their own.

So I sold half of my position just below $150, because I also thought the Nasdaq looked vulnerable.

That was the right move in hindsight, but I certainly didn't expect QCOM to drop all the way back down below $135.

So I'm looking to add back to my position as I watch the price action around the latest M&A news from August 5: QCOM tops current bidder for Swedish automotive safety technology firm Veoneer (VNE - Free Report) .

The Back Story

On July 23, Canadian auto tech company Magna International (MGA - Free Report) announced they had struck a deal to acquire Veoneer, positioning Magna's ADAS (advanced driver assistance systems) business as a global leader in a fast-growing industry.

Veoneer’s complementary products and capabilities strengthen and broaden Magna’s ADAS portfolio and industry position. The transaction is expected to add significant engineering and software expertise, including in sensor perception and handling software.

Pursuant to the agreement, Magna would acquire all outstanding shares of Veoneer for $ 31.25 per share in cash, representing a total value of $ 3.8 billion, and an enterprise value of $ 3.3 billion, inclusive of Veoneer’s cash, net of debt and other debt-like items as of March 31, 2021.

Well if QCOM management was waiting around for an ADAS company to drop into its lap, they may have waited to long. After they bid $37 per share for VNE -- about $4.6 billion -- and Veoneer brass considered the competing deals for a month, QCOM shares drifted lower, finding some support above $140.

Then on September 14, Veoneer made it official that they were sticking with Magna. And QCOM shares fell from $144 to $134 that week.

This is a space I'm watching closely, ever since I was an investor in Mobileye shares 5 years ago before Intel acquired the Israeli company for $15 billion. My current favorite small favorite is Luminar Technologies (LAZR - Free Report) which specializes in a LIDAR platform being used by Volvo.

Bottom line on QCOM: They may have demonstrated some poor M&A skills that aroused investor doubt, but longer-term QCOM is in a great position to lead the 5G revolution and the stock appears a value play among semiconductors given its growth.