No Qualcomm? No Problem: NXP Semiconductors Is Still A 'King'

NXP Semiconductors NXPI received two big upgrades Friday in the wake of its sale to Qualcomm, Inc. QCOM falling through. The deal, which valued NXP at $127.50 per share, failed to receive approval from Chinese regulators.

The Analysts

Jefferies analyst Mark Lipacis upgraded NXP from Hold to But, but cut his price target from $127.50 to $125.

Similarly, Mizuho’s Vijay Rakesh upgraded the stock from Neutral to Buy and cut his price target from $127.50 to $115.

The Theses

Lipacis sees an opportunity to place NXP in three themes. The first is strong revenue growth over the long-term.

Jefferies’ “4th Tectonic Shift in Computing” thesis argues that Internet-of-Things decides are the next era of computing and will be 10 times larger than cell phones. The analyst believes NXP is well-positioned as a critical component supplier, and will ride the trend for the next 10 to 15 years.

The second theme is margin expansion, or as Lipacis calls it, an “Analog Renaissance.” Consolidation in NXP’s core markets will grant the company pricing power and higher margins.

Rakesh’s thesis followed similar lines, noting that NXP is the global leader in semiconductors and radars for automotive purposes. “We believe [NXP Semiconductors] is still the king in Automotive,” he said in a note.

Lipacis’ final theme is capital return. “We've shown a high correlation between capital return and P/E ratio for semiconductor stocks.” The analyst is hoping to see the company move forward with its recently announced $5 billion share buyback and continues returning cash to investors.

NXP has a good deal of cash on hand to do so, especially considering the $2 billion break-up fee Qualcomm must now pay it.