Morgan Stanley Remains Bullish On Qualcomm, But Sees Uncertainty With China, CFO Search

On Friday, the 9th Circuit Court of Appeals granted Qualcomm, Inc. QCOM a stay in a Federal Trade Commission antitrust case.

While news of the FTC’s pause is encouraging, prospects of divestment from China and the so-far unsuccessful search for a chief financial officer are unsettling, according to Morgan Stanley.

The Analyst

James Faucette maintained an Overweight rating on Qualcomm with an unchanged $89 price target.

The Thesis

Legal experts have suggested that a stay by the FTC indicates a higher likelihood of the ruling being ultimately overturned, which is positive for Qualcomm, Faucette said in a Monday note. (See his track record here.)

The ruling has “little incremental impact” on the company’s licensing agreements, even the recently announced agreement with LG, the analyst said. Nonetheless, the resolution of the case could be reassuring to a wider group of investors, he said. 

A complete divestment from China would have a significant impact on Qualcomm’s earnings power, Faucette said. 

While estimating the contribution from China-based original equipment manufacturers to Qualcomm’s EPS at nearly $3, the analyst said the disengagement could create disruption in the supply chains of non-Chinese OEMs. This would be an added headwind for the company’s business, he said. 

Adding to the uncertainties, Qualcomm announced that interim CFO Dave Wise would be retiring effective immediately and named Akash Palkhiwala as his replacement. The company has yet to identify a permanent CFO, according to Morgan Stanley. 

Price Action

Qualcomm shares were down 0.72% at $72.99 at the time of publication Monday. 

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