(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
Qualcomm Inc. (QCOM) shares fell more than 4 percent after news broke that President Trump would block Broadcom's $117 billion acquisition of the company. (See more: Why Did Trump Block Broadcom's Bid for Qualcomm?)
But the biggest losers may be Qualcomm shareholders, as the stock could decline by nearly 20 percent based on technical analysis. Meanwhile, Qualcomm's fundamentals suggest the stock is overvalued. With the deal between Qualcomm and Broadcom Ltd. (AVGO) being canceled, investors are likely to refocus on Qualcomm's fundamentals.
Qualcomm is still attempting to close its acquisition of NXP Semiconductors N.V. (NXPI) after revising its bid for the company to $127.50 a share, but is awaiting regulatory approval from China. Qualcomm needs to close the deal with NXP to bolster its future revenue and earnings growth.
The daily chart shows that Qualcomm has broken a critical support level around $62. This could lead to the stock falling all the way to $50, a decline of roughly 20 percent from its current price of around $60. The stock has been trending lower since peaking in mid-2014, and that downtrend suggests that shares could be headed lower toward $50.
Tepid Growth Outlook
The revenue outlook for Qualcomm continues to deteriorate as it continues to battle Apple and other licensee disputes. (See more: Qualcomm's Feud With Apple Now Ropes in Intel.)
Analysts are estimating revenue to decline by 4.5 percent in 2018 to $22.2 billion, while earnings are expected to fall by nearly 20 percent to $3.43 per share.
But the bad news is that the revenue outlook is expected to remain weak, with only a 2 percent rise in 2019, and 3 percent in 2020.
QCOM Annual Revenue Estimates data by YCharts
Reliance On NXP Deal
The weak growth outlook places added pressure on Qualcomm to close its proposed acquisition of NXP Semiconductor N.V. (NXPI), which would pull NXP products and dominance in near-field communication and automotive chips, into Qualcomm's portfolio.
That would bolster Qualcomm's tepid growth outlook. But that deal is waiting to be approved by Chinese regulators, and until that approval comes, there's still a risk of it getting blocked. This may be why shares of NXP are trading at a discount of about 3 percent versus the Qualcomm offer price.
Qualcomm shares are not even cheap at its current valuation, trading at nearly 15 times 2019 earnings estimates of $3.97. That puts its valuation ahead of Broadcom at 13 and Intel at 14. (See also: Intel May Buy Broadcom to Protect Apple Franchise.)
For now, Qualcomm is left to trade on its merit without a Broadcom bid supporting its stock price, and that means shares are likely to head lower over the short term.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.