Qualcomm Shares Jump on $16 Billion Buyback Program

Qualcomm, Inc. (QCOM)  shares reached a nearly four-year high on Thursday as the company announced an accelerated share buyback program with major banks.

The San Diego-based chip maker's stock soared 4% to $74.61 on Thursday following the company's announcement, which outlines an accelerated $16 billion share buyback program that will help build toward a projected $30 billion total buyback.

The company's shares began 2018 at $65.20 and were as low as $50 on April 24 of this year. They traded at $78.51 on Oct. 1, 2014.

The repurchase agreements that have been reached with Bank of America Corp   (BAC)   , Citigroup Inc   (C)  , and Morgan Stanley   (MS)   will transfer 178 million shares to the banks in exchange for the $16 billion.

"We are pleased to initiate this significant accelerated share repurchase as we continue to execute on our previously announced $30 billion stock repurchase program," Qualcomm CEO Steve Mollenkopf said in a statement. "We remain on track to complete a large majority of the announced program by the end of fiscal 2019."

Qualcomm has pursued the $30 billion share repurchase since July in order to make up for the company's failed acquisition of NXP Semiconductors NV  (NXPI)  .

The deal, in which Qualcomm sought to takeover the Dutch semiconductor company for $44 billion, was suspended in late July after it met resistance from Chinese regulators.

As a result, the company moved to increase its $10 billion share repurchase program to $30 billion by the close of 2019.

Analysts Back on Board

Barclays PLC analyst Blayne Curtis explained that the buyback program, along with cost cuts, is an important "first step" in moving the company toward his price target of $95 in a note this morning.

The buy rating and bullish price target from Curtis reinstates his coverage of the stock, which was previously suspended.

While he stated that the company's buyback program is an important first step and a motivating factor for coverage, Curtis explained that there are more prominent reasons to own the stock in the long term.

"We are modeling the $30 billion buyback and cost cuts, but the reason to own the stock is for possible licensing resolutions and the 5G ramp adding $2.80-$3.60 to earnings per share," he wrote.

Curtis further explained that upside potential at Huawei Technologies Co, Ltd. and Apple, Inc. (AAPL)  will help contribute to significant growth for the company.

"The reason to own the stock is the upside to model given potential resolutions at Apple and Huawei, large buybacks, and ramp of 5G driving material," he wrote.

His analysis is familiar to watchful traders who would have seen his forerunners in August signaling the same trend.

Cannacord Genuity analyst T. Michael Walkley pointed to the importance of 5G as a major driver following his firm's growth conference in August, for example.

"We believe initial 5G sales will also help QCT trends exiting fiscal year 2019 and position Qualcomm for stronger growth in fiscal 2020 with the ramp of 5G smartphone sales," he forecasted. "Also, with Qualcomm heavily investing in 5G R&D the past several years, we anticipate Qualcomm will harvest these investments with expanding margins."

He explained that this investment positions the company positively and places it ahead of competitors.

"We believe Qualcomm is roughly one to two years ahead of its competitors in 5G," he concluded.

Potential Pitfalls

However, not all analysts were bullish on the stock, as question marks do remain in the longer term.

"As of right now smartphones are not on the tariff list and there's not a big impact on raw semiconductors yet," Sanford C. Bernstein senior research analyst Stacy Rasgon told Real Money. "But if Trump says he has another $267 billion coming, that means basically everything else."

The concern over a next round of tariffs certainly caught the eye of Charles Schwab CIO of equities Omar Aguilar, who told CNBC that the impact on semiconductor earnings could be dire.

"It is more of an investor issue than an economic one," he explained. "What this could do for semiconductors is it could actually take up to 25% of their earnings if these tariffs go into effect."

Rasgon expounded on the point, noting that tariffs and their negative impact on consumers in both the U.S. and China have an immediate pressure on the semiconductor market.

"Demand has been strong, but tariffs could have an impact on demand which would trigger more pressure on the sector," he explained.

Jim Cramer and the AAP team hold positions in Apple and Citigroup for their Action Alerts PLUS Charitable Trust Portfolio . Want to be alerted before Cramer buys or sells AAPL or C? Learn more now.