NXP Semiconductors' Standalone Value Is $119, SunTrust Says In Downgrade

Assuming the Qualcomm, Inc. QCOM tie-up with NXP Semiconductors NV NXPI ultimately fails to be approved by Chinese regulators, NXP's stock is worth $119 per share on a standalone basis, according to SunTrust Robinson Humphrey.

The Analyst

Analyst William Stein downgraded NXP Semiconductors from Buy to Hold with an unchanged $119 price target.

The Thesis

NXP's stock has shown a tendency to correlate with broader macro trade developments, and the stock benefited from sentiment after the U.S. government reportedly reached an agreement with China's ZTE, Stein said in the downgrade note. (See the analyst's track record here.)

An agreement between the government and ZTE bodes well for the prospect of China's government signing off on the NXP merger and justifies a move in NXP's stock above $120 per share, the analyst said.

On a standalone basis, NXP's stock is worth just $119, Stein said, giving the following reasons for the valuation:

Long-term sales growth of 10-18 percent.
Operating profit margin that reaches the 31-34 percent level.
NXP allocates $2 billion in breakup fees and most of its free cash flow generation to repurchase shares.
A 14x P/E multiple on 2019 EPS estimates.

Investors willing to buy NXP's stock above $119 per share would need "an explicit view" that China's government is at the very least "relatively likely" to approve the transaction, Stein said.