RBC: Qualcomm could get to record highs with or without the Broadcom deal

QualcommDavid Becker/Getty ImagesQualcomm CEO Paul Jacobs speaks during a keynote address in January.

Qualcomm was surprised last week when Broadcom made an unsolicited bid for the company. Investors sent the stock higher on the news, and Amit Daryanani, an analyst at RBC, says there is even more room for the company to grow.

“We are upgrading Qualcomm to outperform from sector perform as we think the stock is fairly attractive at ~$US64 given two likely paths from here,” Daryanani said. He said the two fairly obvious paths forward would be either the Broadcom bid going through, or Qualcomm staying independent.

Broadcom submitted a bid of $US70 per share for Qualcomm, in the form of $US60 in cash and $US10 of Broadcom stock. Daryanani said that if Qualcomm is to accept a bid from Broadcom, it would likely be higher than that initial offer of $US70 a share. He thinks there is room for the Broadcom bid to increase to the high-$US70 to low-$US80 per share range.

The road higher is a bit rockier without a Broadcom deal, but is still possible, according to Daryanani. The company would have to close its acquisition of NXP Semiconductors, which it is currently wrapping up for $US47 billion.

Qualcomm would also have to successfully navigate its legal fight with Apple, Daryanani said. The iPhone maker has accused Qualcomm of abusing its monopolistic position in certain phone components and the two companies have been trading legal blows all year.

Daryanani also said that Qualcomm could see a bump in its earnings, and therefore stock price, if it is able to improve its margins. By acquiring NXP, Qualcomm has a chance to increase its margins by leveraging synergies between the two companies. By getting operating margins to the mid 30% range, Daryanani said Qualcomm could add $US1.00 per share to its yearly earnings.

The changes Daryanani suggests could give Qualcomm a bump even if the Broadcom takeover doesn’t happen. Daryanani increased his price target for Qualcomm from $US55 to $US70, and sees Qualcomm going to $US90 a share if it is successful on all fronts. $US90 would be a record-high for the company.

Qualcomm is up just 0.12% for the year, including the post-takeover offer bump, and was trading around $US65.42 Wednesday morning.

Read more about the takeover offer here.

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