NXP Semiconductors NV Could be Set for a Surge
NXP Semiconductors NV (NASDAQ:NXPI) surged over 16% last Thursday on speculation that the Netherlands-based chipmaker was being pursued by Qualcomm, Inc (NASDAQ:QCOM).
The move to acquire NXPI stock at a price likely to be in excess of $32.0 billion is not a surprise, given that NXP Semiconductors NV is involved heavily in areas that are seeing significant growth, such as the Internet of Things (IoT), connected cars, cybersecurity, portables, and wearables.
A deal for NXPI stock, if it does surface, makes a whole lot of sense. Qualcomm wants to add growth and NXP Semiconductors NV would satisfy that motive.
Now, whether an acquisition of NXP Semiconductors NV does materialize is unknown, as the company may rather be on its own, understanding the massive potential ahead.
The irony in all of this is that NXP Semiconductors NV is coming off its own $11.8-billion acquisition of Freescale Semiconductor, Inc. in March 2015. Because of this, I’m not convinced that NXPI stock would be open to a takeover unless the offer price is insane. Perhaps something north of $100.00 per share of NXP Semiconductors stock would be a starting point, and I could see a price demanded at over $110.00 per share.
If a deal for NXP Semiconductors stock doesn’t materialize, it would be fine for shareholders, as it would enable the company to achieve its full potential as an independent company.
Chart courtesy of StockCharts.com
My Bull Case for NXPI Stock
As I said, NXP Semiconductors NV has its hands in numerous high-growth disruptive technologies. Think about the move toward connected and autonomous vehicles. It’s massive, and NXP Semiconductors NV has a growing presence in it.
Then there is the “ARM” line of processors made by NXP Semiconductors NV. Unlike the chips you find in personal computers (PCs) and other archaic technologies, ARM technology is probably the fastest-growing segment of the chip market due to its small size, low energy usage, and high speed. The chips are used in the consumer electronics segment such as smartphones, tablets, wearables, and other mobile devices.
A look at the financials of NXP Semiconductors stock helps to support my bull thesis.
In the first quarter, revenues grew at 52% year-over-year and 38% sequentially to $2.22 billion. The numbers did include the merger of Freescale. The company’s “High Performance Mixed Signal”(HPMS) segment, which accounts for about 86% of total revenues, saw growth of 73%.
More importantly, the breakdown of NXP Semiconductors NV revenue was strong for the majority of the time.
NXP Semiconductors NV HPMS Breakdown:
- Automotive: $805.0 million (up 167%)
- Secure Identification Solutions (SIS): $212.0 million (down 5%)
- Secure Connected Devices (SCD): $471.0 million (up 63%)
- Secure Interface & Infrastructure (SI&I): $423.0 million (up 45%)
(Source: “Financial Results,” NXP Semiconductors NV, last accessed September 29, 2016)
Valuation Implies Higher Price
Despite the jump in NXPI stock, the valuation remains attractive and appears to signal a higher price whether via a takeover bid or as an independent company.
NXP Semiconductors stock trades at 11.08 times its 2017 earnings per share (EPS) ratio, and has a cheap price/earnings to growth (PEG) ratio of 0.53. This implies that NXPI stock trades at only 53% of its estimated five-year compound annual growth rate (CAGR) for earnings, which is a massive discount by the market.
The bottom line is to keep a close eye on NXP Semiconductors NV, as it could be the next wonder stock.