When Broadcom (NASDAQ: AVGO) announced its intent to buy Qualcomm (NASDAQ: QCOM) in the high $70’s to $82, the stock rallied from $50 to top out at $67.50. But since Nov. 2017, the stock just traded in a narrow trading range, since the market was highly skeptical any deal would close. The market got the call right. U.S. President Trump blocked the deal last week. Unless another buyout deal materializes, Qualcomm stock risks falling to the $50 - $55 range.
Before declaring a $50 price target on Qualcomm, investors need to weigh in two events ahead. First, QCOM’s “poison pill” is effectively an overpayment now. By raising its bid for NXP Semiconductor (NASDAQ: NXPI), management was, at the time, willing to pay an even bigger premium to ward off Broadcom. All it took was an activist shareholder with a small position to force Qualcomm to pay $44 billion for NXPI stock.
The higher bid has one positive result: it will at least win over the dissident shareholders holding out for more. All Qualcomm needs now is approval from China. IT won approval from the EU and Korea in January.
Winning favorable ruling against Apple (NASDAQ: AAPL), is the second, upcoming positive catalyst for Qualcomm. Unwilling to pay the royalty rates it agreed upon, Apple is not expected to win. Yet anything can happen.
A ruling against Qualcomm will change the future royalty rates and income stream for the company.
So $50 - $55 next? The markets could take the stock lower if no bidder emerges soon.
Tech Insider
