Technology

Why Analysts Favor Intel Over Qualcomm

Chris Lange

Published: January 29, 2017 10:05 am

Last Updated: January 12, 2020 3:23 pm

Intel Corp. (NASDAQ: INTC) and Qualcomm Inc. (NASDAQ: QCOM) have been competing in the tech sector for a long time. Each just reported their most recent earnings, and there was a clear winner and clear loser this past week.

Looking at the Intel earnings report, it handily beat estimates on both the top and bottom lines. Intel said that it had $0.79 in earnings per share (EPS) and $16.37 billion in revenue, compared with consensus estimates from Thomson Reuters of $0.75 in EPS and revenue of $15.76 billion. The same period of last year reportedly had EPS of $0.76 and $14.9 billion in revenue.

Credit Suisse reiterated its Outperform rating and raised its price target to $45 from $40, implying an upside of 20% from Thursday’s close ($37.56). This also represents a price-to-earnings ratio of roughly 15 times 2018 estimated earnings of $2.98 per share. The firm further detailed in its report:

We will continue to challenge management to scrutinize investments, to drive more leverage, and to generate higher levels of free cash flow – but the narrative of “spending scared” is not fully supported by the facts. With low investor expectations, “manageable” guidance and a Feb 9 Analyst Day, we see positive risk/reward.

Other analysts weighed in on Intel as well:

• Merrill Lynch reiterated a Buy rating with a $42 price target.
• Jefferies cut its price target to $45 from $46.
• Morgan Stanley upgraded it to Equal Weight from Underweight with a target of $38.
• Bernstein has a Market Perform rating and raised its price target to $36 from $33.
• Deutsche Bank has a Buy rating and raised its price target from $42 to $43.
• Goldman Sachs has a Neutral rating and raised the price target to $41 from $39.
• Needham raised its price target to $43 from $42.

Shares of Intel closed Friday at $37.98, with a consensus analyst price target of $40.09 and a 52-week trading range of $27.68 to $38.45.

It does not help Qualcomm’s case that Apple is bringing a suit against the firm. Apple recently filed the suit in the United States and China over patent licensing royalties. Apple is perhaps the biggest single customer of Qualcomm, and any disruption in this business for Qualcomm is not good news. Shares already have been feeling strong downward pressure from this to begin with.

Qualcomm posted adjusted diluted EPS of $1.19 and revenues of $6 billion. The consensus analysts’ estimates had called for $1.18 in EPS and $6.12 billion in revenue. In the same period of the previous fiscal year, Qualcomm reported EPS of $0.97 on revenues of $5.8 billion.

Merrill Lynch maintained its Buy rating for Qualcomm with a $68 price objective. The brokerage firm commented:

Qualcomm reported 1Q results/2Q guidance mostly in-line with expectations; modest licensing strength offset semi softness. Management addressed the Apple lawsuit and regulatory pressures, defending its licensing model and patent leadership. We remain positive on NXP, valuation, but note potential for Apple-related risk in the second half of 2017.

A few other analysts weighed in on Qualcomm after earnings as well:

• Cowen has an Outperform rating and lowered its price target price to $73 from $74.
• Instinet has a Neutral rating and lowered its price target to $65 from $70.
• Morgan Stanley lowered its price target to $60 from $65.
• Pacific Crest has an Overweight rating but lowered its price target from $83 to $81.
• RBC cut its price target to $60 from $70.

Shares of Qualcomm closed Friday at $54.24. The consensus price target is $66.00, and the 52-week range is $42.24 to $71.62.