InterDigital Inc (IDCC)

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Bank of America Sees Double-Digit Upside in These 2 Stocks — Here’s Why They Could Surge
TipRanks
Fri, May 12, 2023 at 3:43 PM CDT

InterDigital (IDCC)

Next up is InterDigital, another tech company tied to networks and connectivity. Specifically, InterDigital focuses on research and development of new technology for wireless and video connected technologies. The company aims to solve the network industry’s pressing technical challenges, with solutions to increase broadband efficiency, deliver better video, and improve the multimedia user experience.

InterDigital has license agreements with leading wireless companies and tech firms around the world, and those agreements can sometimes end up in court. In recent months, the company has gotten favorable rulings on two major cases, involving Lenovo and Samsung.

In the Lenovo case, a licensing dispute, a UK court handed down a judgement ordering Lenovo to pay $138.7 million in license fees to InterDigital, and must pay ‘in full’ for past sales going all the way back to 2007. The Samsung case did not get to court, but the two sides did reach an agreement. The recent conclusion of that binding arbitration helped push InterDigital’s 1Q23 revenues to more than $200 million.

And that brings us to the company’s most recent quarterly financial results. The boosted top line came to $202.37 million, up almost 100% year-over-year and beating the forecast by over $101 million. The quarterly EPS was reported as $3.58, far ahead of last year’s 58 cents, and $2.99 ahead of the forecast. We do need to repeat that this performance was due, in large part, to the receipt of court and arbitration awards. The company’s recurring revenue in the quarter was $101.6 million, up 2% y/y.

InterDigital has used its Q1 windfall, in part, to accelerate its capital return/share repurchase program. The company increased its repurchase authorization during the quarter, to a total of $400 million, and bought back 2.7 million shares.

All of this caught the eye of Tal Liani, who covers IDCC for Bank of America. Liana laid out his stance on the stock, noting: “Bullish on medium-term outlook and strong management team, we flag likely upside on the Samsung and Lenovo revenue contributions as another key driver. InterDigital is currently in binding arbitration with Samsung and recently received a favorable ruling in the Lenovo case. The company already recognizes these revenues, though at a conservative level, and could see some upside once the cases finalize…. In addition, we see stock upside from continued growth beyond wireless into CE, IoT, and Autos, and note that strong share buybacks are adding to the stock’s attractiveness…”

Liani’s take on IDCC has changed dramatically. He recently made a double upgrade on the stock, from Underperform to Buy, and his $105 price target (up from $55) implies a 23% upside going out to the one-year time horizon. (To watch Liani’s track record, click here)

IDCC has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent ratings – but both are Buys. With shares trading at $82.87, the $109.50 average price target suggests room for a 32% upside. (See IDCC stock forecast)