Take a Breather on Qualcomm as It Trades In-Line With Peers

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Is it time to take a breather on Qualcomm? After watching the stock run up nearly 10% over following its latest quarterly earnings, Morgan Stanley analyst James Facuette thinks so.

The analyst downgraded Qualcomm to equal weight from overweight, though raised his one-year price target by a buck to $90 on expectations that the company's valuation relative to its peers is now baked in, following its recent post-earnings run-up.

"Recent gains have come as investors see a high probability of a China-U.S. trade agreement" as well as optimism over 5G and additional expectations that the Federal Communications Commission case "won't materially impact the business," Faucette said in a note to clients on Monday.

However, given the stock's run-up in recent months as well as ongoing uncertainty surrounding both tariffs and an antitrust lawsuit by the Federal Trade Commission currently being appealed by Qualcomm, potential tailwinds from new markets and opportunities likely will take longer to have a notable impact on results, Faucette said.

Qualcomm in August won a partial stay against the enforcement of a sweeping antitrust ruling in a lawsuit brought by the FTC that would have forced it to grant patent licenses to rival chip suppliers and end its practice of requiring its chip customers to sign a patent license before purchasing chips.

Qualcomm last week posted fourth-quarter earnings and revenue firmly ahead of Wall Street estimates. The company posted per-share earnings of 71 cents on revenue of $4.8 billion.

It also said current quarter revenue is likely to rise to between $4.4 billion and $5.2 billion, just ahead of consensus forecasts of $4.82 billion, with adjusted per-share earnings for the quarter of between 80 cents and 90 cents a share, ahead of analysts' forecasts of 81 cents a share.

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