Soft Smartphone Outlook Merits Lowered Estimates, Says J.P. Morgan

Qualcomm (QCOM) investors should prepare from some rocky months ahead, if J.P. Morgan’s Samik Chatterjee’s latest assessment is anything to go by.

Due to expectations the global smartphone market will decelerate this year on account of slowing consumer spending, Chatterjee anticipates the lowered outlook for the smartphone market will “drive softer” QTL (qualcomm technology licensing) revenues as well as a “slight moderation” in QCT (qualcomm CDMA technologies) revenue and margins.

This results in a reduction to the analyst’s estimates; the FY22 EPS forecast is lowered to $11.70 vs. the prior $11.95. The new figure is also below the consensus estimate of $11.84.

By moderating expectations and becoming less bullish on the shares, Chatterjee also takes Qualcomm off J.P. Morgan’s US Analyst Focus List.

Topping off all these bearish developments, Chatterjee has also reduced the price target from $240 to $205. Nevertheless, there’s still upside of 41% from current levels. The analyst’s rating stays an Overweight (i.e. Buy). (To watch Chatterjee’s track record, click here)

As indicated by the bullish rating, it is not all doom and gloom on the Qualcomm front. Despite the weaker smartphone outlook, standing in Qualcomm’s stead – more so than for its peer group – is the progress the chip giant is making on “diversification.”

“Qualcomm’s strong share gains with android smartphone OEMs in 2022, greater exposure to high-end smartphones, as well as the opportunity to divert supply to non-handset end markets will provide offsets to the broader slowdown in the smartphone market,” the 5-star analyst explained.

As such, while the lowered QTL expectations – and to an extent for QCT too – are the main factor why FY23/FY24 estimates also get a haircut, they still remain above consensus for both years. At $12.80 for FY23 vs. the Street’s call of $12.59 and $14.20 for FY24, compared to the consensus estimate of $13.33.

So, that’s J.P. Morgan’s view, what does the rest of the Street make of Qualcomm’s prospects? Based on 12 Buys vs. 5 Holds, the analyst consensus rates the stock a Moderate Buy. The average target is more bullish than Chatterjee will allow; at $216.88, the figure represents potential upside of ~59%. (See Qualcomm stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.