Here Comes 5G Benefit: Sell-Side Likes Qualcomm's Coming Year

Qualcomm Inc's. QCOM strong fourth-quarter results pleased sell-side analysts, but the driving factor in much of the bullishness is the ramp up of 5G, expected to bolster the company's bottom line starting next year. Investors were also bullish on the chip maker, buying its stock up more than 8%.

Qualcomm beat consensus revenue and earnings estimates, but much of the attention in the sell-side reaction turned to its guidance out to next year, when the company is expected to start to benefit more from the next communications generation.

The Analysts

Bank of America's Tal Liani reiterated a Buy rating and $100 price target on the stock.

JPMorgan's Samik Chatterjee reiterated an Overweight rating on the stock with a $96 price target.

UBS analyst Timothy Arcuri remained Neutral on the stock but raised the target price from $73 to $87. 

Raymond James analyst Chris Caso reiterated a Strong Buy rating on Qualcomm with a $115 price target.

Tigress Financial's Ivan Feinseth continues to recommend a Buy.

The Theses

The long-awaited arrival of 5G is the biggest driver on the positive sentiment on this stock.

"5G is expected to launch across all regions in the next 2-3 years, and every 5G flagship launch (besides Huawei) contains Qualcomm chipsets," Liani wrote in a note. "Qualcomm anticipates a positive inflection point in F2Q20 as 5G becomes more meaningful."

Chatterjee, while noting that "stabilization of 4G led revenues." also cited the coming 5G cycle as did Arcuri.

"5G is a great narrative," Arcuri said, but it's hard to see EPS power much better than about $7 per share and there's still risk from Qualcomm's ongoing Federal Trade Commission case.

Feinseth cited Qualcomm's announcement of development partnerships with several companies to use its wireless modems as replacement for traditional home and business cable modems for connections to the 5G network.

"There is a potential for over 300 million U.S. households that could use 5G connectivity for their home or business broadband needs," Feinseth wrote. "I believe additional upside exists in the stock from current levels."

Apple Also A Catalyst

Analysts also noted a coming catalyst from next year's iPhone from Apple Inc AAPL.

"Commentary was consistent with what we learned in Asia in September - that certain versions of next year’s iPhone will have mmWave capability, supplied by QCOM, another significant catalyst," wrote Caso.

Qualcomm shares were up 8.5% Thursday, trading at $91.87.

Photo courtesy of Qualcomm.