Barclays On InterDigital: IoT Goal Conservative, Sees Continued Capital Returns

Barclays said InterDigital, Inc. IDCC's IoT goal as conservative, while noting the latest dividend increase indicate the company would continue to return capital to shareholders.

At its investor day, the company said it expects to generate annual revenues of $75-$100 million from its IoT business in the next five years.

Assuming the same operating cost basis as today, the company noted a $100 million increase in revenue could drive about 50 percent increase in operating income. For context, InterDigital had about $209 million of EBIT in 2015.

"Given the size and scope of the IoT and 5G opportunities, we see IDCC's IoT goal as conservative as the company likely accounts for the uncertainty around monetization strategies and the timing/rate of incremental demand for its IoT related services and products," analyst Darrin Peller wrote in a note.

"In addition, we expect 5G to be meaningfully additive to the company's recurring revenue base much like 4G to 3G/2G and 3G was to 2G before that," Peller continued.

Peller, who has an Equal-Weight rating on the stock, raised his price target to $80 from $75. The analyst pointed out that the recent increase of quarterly dividend to $0.30 from $0.20 suggests management to continue to build on the company's capital return efforts given strong cash position and FCF profile.

At time of writing, shares of InterDigital fell 1.24 percent to $78.62.