InterDigital is a double from here, Roth Capital says

Good news has been coming in from InterDigital Inc (InterDigital Inc Stock Quote, Charts, News, Analysts, Financials NASDAQ:IDCC), according to Roth Capital Partners analyst Scott W. Searle, who delivered an update to clients on the company on Tuesday. Searle maintained a “Buy” rating on the stock and $100.00 target price, which at the time of publication represented a projected one-year return of 102 per cent.

A leading designer, developer and licensor of advanced technologies for mobile devices and networks, InterDigital has a portfolio of over 19,000 patents, with an emphasis on communications and patents for 3G, 4G, Wifi and emerging 5G applications along with IoT, video and sensor solutions.

The company announced on Tuesday that its board has authorized an increase to its stock repurchase program by $333 million to a total of $400 million, with the company saying it will use its cash resources to facilitate the buybacks.

Also on Tuesday, InterDigital announced an agreement with Samsung to have a panel of arbitrators to “establish the royalties to be paid by Samsung,” with the outcome to be a global licensing agreement expected to be concluded within about 18 months.

“While we always prefer to conclude our license agreements through amicable good faith negotiation, independent binding arbitration provides an effective mechanism for resolving licensing disputes,” commented Liren Chen, CEO and President, InterDigital, in a press release. “I welcome Samsung’s willingness to enter into a new license with us and their commitment to work through the remaining issues in arbitration.”

Finally, on Tuesday InterDigital further announced a new video licensing agreement with LG and a renewal of one with Panasonic.

Searle called the Samsung arbitration news a mixed bag with more positive than negative, since Samsung is acknowledging that it uses IDCC patents and expects to be required to use their IP going forward and, further, Searle said arbitration will be less costly and more amicable route.

“Overall, we view the news as a net positive with Samsung’s arbitration acknowledging IDCC’s patent validity (and avoiding a license agreement lapse), just debating the actual annual value (Note: We highlight that Samsung pays ~60 per cent of the recent Apple renewal). While near-term revenue recognition questions exist, we believe the longer-term sales and EPS will be higher,” Searle wrote.

On the share buyback plan, Searle pointed out that the $400 million amounts to about 26 per cent of IDCC’s market cap at the start of the new year.

“While we believe this encompasses an element of stock support, given potential investor discomfort around the arbitration timeline and outcome, it also underscores the successful conclusion of the Apple renegotiation and partial resolution with Samsung (arbitration). Consequently, capital requirements for a protracted and expensive litigation have been mitigated, leaving the prior balance sheet with $863 million in cash (FCF positive operations) in an overcapitalized state. Overall, the buyback is healthy, accretive and provides support,” he said.