this dude no likey deal... LOL
i also note his price target considering 2017 EBIDTA is 80 LOL!!!!!
Interdigital Stock Jump on Apple Deal A Bit Too Much, Says B. Riley
By Tiernan Ray
Shares of patent-license house Interdigital (IDCC) are down 10 cents at $90.65, after yesterday’s 7% jump following its announcement it signed a new agreement with Apple (AAPL), and raised its forecast for this quarter.
B. Riley’s Eric Wold today speaks for bears who think the enthusiasm is too much.
Wold reiterates a Hold rating, and an $80 price target, writing that this first “direct agreement” with Apple is a good thing, it also reduces the company’s royalty rate:
While we have believed that a direct AAPL license would eliminate any risk of market share mix shifts from Pegatron to Hon Hai and potentially allow for broader coverage of more AAPL products, we acknowledged this would likely come with a reduction in average royalty rates – both of which look to be the case with this new agreement. As a part of this announcement, IDCC reduced its prior projected annual royalty platform revenues of $380MM + Avanci IoT licensing to $360-380MM + Avanci IoT licensing, which, we believe, indicates the new AAPL license will drive reduced recurring revenues of as much as $20MM annually.
The deal should help Interdigital get agreements with other handset makers, such as ZTE, Lenovo, Xiaomi and LG, he believes.
But regardless of whatever good comes of the agreement, Wold thinks the stock jump is too much:
While this AAPL royalty agreement certainly helps to de-risk the manufacturing relationship with AAPL and could help other royalty discussions, we believe the move in IDCC shares (of as much as 16% and ending up 7%) seemed somewhat aggressive given the one-time nature of the Q4 revenue upside and adverse impact to forward revenues. Our $80.00 price target is based on 9.5x our 2017 EBITDA estimate of $239MM, which includes the assumption of additional royalty agreements with new handset manufacturers – although the one-time balance sheet boost from this agreement would be incremental to our prior assumptions.
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