InterDigital has near-term upside and a medium-term opportunity

By Sam Boughedda

Jefferies initiated coverage of InterDigital (NASDAQ:) with a Buy rating and $80 price target in a note to clients on Friday.

Analysts told investors in a note that the company has posted a three-year revenue CAGR of 11% as it expanded existing relationships and signed new licensees, and they model an 11% CAGR through 2027 that “delivers operating leverage and five-year EPS power of $6.75.”

“IDCC is a provider of leading cellular and video compression/streaming IP (>28k total patents and 50% increase in patent assets since ’17) that it licenses into the smartphone, consumer electronics, auto, and IoT markets. It has decades-long relationships with Apple (NASDAQ:), Samsung (KS:), LG and Sharp (OTC:), multi-year relationships with SONY, Huawei, ZTE (HK:) and Google (NASDAQ:), and more recently signed Xiaomi (OTC:) and Vizio. We view its fixed fee, multi-year license contracts with Apple, Samsung, and Xiaomi as providing a highly predictable stream of recurring revs and CFs,” explained the analysts.

They went on to state that the company has a near-term upside from smartphone licensing and a medium-term opportunity from consumer electronics (CE).

“IDCC collects ~$350m in recurring revs from smartphone vendors today (primarily Apple, Samsung, Xiaomi, and Huawei), reflecting ~55% market share in smartphones units. Over the next 3 years, we expect additional smartphone revs of $150m, primarily driven by signing unlicensed Chinese vendors (Oppo, Lenovo, and Vivo),” the analysts wrote. “IDCC’s annualized recurring revs from CE have more than doubled over the past 1.5 years, growing to ~$54m/yr from ~$23m/yr. We expect additional CE licensing opportunities to add another ~$100m of annual revs over the next 5 years, primarily driven by signing TV manufacturers like Samsung and LG.”