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Clueless Investor
Price targets: Reach for the sky
By Cecily Fraser, CBS MarketWatch
Last Update: 1:02 PM ET Dec 29, 1999
Personal Finance
Analyst Forum
NEW YORK (CBS.MW) -- In search of a sure thing on Wall Street,
investors piled into shares of Qualcomm on Wednesday after
analysts at PaineWebber set a lofty $1,000 price target on the
high-flying stock.
The stock advanced
114 to 617 on the
news and hit an
intraday high of 622.
The
telecommunications
equipment maker's
shares have climbed
2,332 percent this
year, making it one of
the most closely followed stocks on Wall Street.
While the $1,000 benchmark boosted investor confidence in the
Qualcomm's ability to continue its stratospheric climb, it also left
clueless investors wondering how the analyst could justify such a
far-out objective.
A long-term investment
PaineWebber analyst Walter Piecyk plugged the company's
fundamentals, saying in a research note he believes Qualcomm
represents "an appropriate way" to invest in the long-term growth
trends of wireless and data communications.
Piecyk started Qualcomm (QCOM: news, msgs) with a "buy" rating.
The analyst said that by the end of the next
decade, 85 percent of phones sold will use
Code Division Multiple Access (CDMA)
technology, up from 18 percent today. This
would create a 45 percent compound annual
growth rate for CDMA and a royalty stream of
up to $20 billion for Qualcomm, Piecyk said.
Qualcomm's CDMA technology is used in
cellular phones and wireless communications.
The company sells more than 90 percent of the
Application Specific Integrated Chips (ASICs)
used in CDMA phones and collects royalties for
all CDMA phones. See Ratings Game.
"Our 12-month price target of $1,000 implies
175 times and 55 times our 2001 profit and
revenue estimates but is based on $800 for the
present value of its royalty stream, $170 for 60
times its ASIC profits and $30 for other assets,"
Piecyk said.
In the company's latest earnings report, the wireless giant reported
fourth-quarter net income of $170 million, or 91 cents a share.
Revenue totaled $1.1 billion.
Aiming high
PaineWebber's bullish move comes on the heels of another price
objective increase made just last week. JP Morgan upped its target
on Qualcomm to $570 from $460.
The call is also reminiscent of an outlandish move made in
mid-December last year by Internet guru Henry Blodget.
Blodget, who at the time was an analyst for CIBC Oppenheimer,
hiked his 12-month price target on Amazon.com's (AMZN: news,
msgs) stock to $400 a share from a previous target of $150.
In support of his objective, Blodget said Amazon.com was in the
early stages of building a global electronic-retailing franchise that
could generate $10 billion in revenue and earnings per share of $10
within five years. Bloget's stunning target was met Jan. 6.
Clearly, investors take heed when analysts voice their expectations
for a stock, hoping to reap the benefits of Wall Street's passion for
aiming higher.
Not everyone is making money. There are actually investors, believe it or not, who
buy or sell a stock, commodity, piece of art or security at the wrong time. CBS
MarketWatch readers, if you have a five-paragraph tale of clueless adventures,
e-mail it to our newsroom.
Cecily Fraser is a reporter for CBS MarketWatch. |
