NXP Semiconductors N.V. (NXPI - Get Rating) provides a wide range of semiconductor products. Its products are deployed in several end-market applications such as automotive, personal security and identity, wireless and wireline infrastructure, mobile communications, multi-market industrial, consumer, and computing.

The company’s shares are down 34.1% year-to-date and 23.4% over the past month to close yesterday’s trading session at $150.02. Its stock price fell to a new 52-week low during midday trading on Wednesday after Bank of America reduced its price objective from $220.00 to $190.00 on worries over rising interest rates.

However, the stock rose nearly 4.04% this month after NXPI was rumored to be on Samsung’s list of prospective acquisitions of European chipmakers. With the acquisition of NXPI, Samsung intends to expand its presence in the automotive semiconductor industry.

Furthermore, Samsung is optimistic about the automotive semiconductor space due to increased demand for chip content in automobiles as the industry transitions to electric vehicles and autonomous driving.

Here’s what could shape NXPI’s performance in the near term:

Latest Development

This month, NXPI introduced two new processor families that add secure, high-performance real-time computing to NXP’s revolutionary S32 automotive platform.

The S32Z and S32E processor families assist the automotive sector in accelerating the integration of varied real-time applications for domain and zonal control, safety processing, and vehicle electrification, all of which are crucial to the next generation of safer and more economical automobiles.

This month, NXPI introduced the new MCX microcontroller portfolio, intended to drive innovation in smart homes, smart factories, smart cities, and a wide range of growing industrial and IoT edge applications.

The portfolio consists of four series of devices developed on a similar architecture, all of which are supported by the widely used MCUXpresso suite of development tools and software. This integrated service enables developers to optimize software reuse throughout the portfolio to accelerate development.

Robust Financials

During the first quarter ended April 03, 2022, NXPI’s total revenue increased 22.2% year-over-year to $3.14 billion. Its non-GAAP operating income increased 41.3% year-over-year to $1.12 billion. The company’s adjusted net income grew 43.6% from the year-ago value to $1.19 billion. In addition, its adjusted EBITDA grew 43.6% from the prior-year quarter to $1.19 billion.

Strong Profitability

NXPI’s trailing-12-months net income margin of 18.7% is 250.4% higher than the industry average of 5.3%. Also, its ROC, EBITDA margin, and ROA are 137.5%, 165.1%, and 238.6% higher than the respective industry averages. Furthermore, its gross profit margin of 55.8% is 10.7% higher than the industry average of $50.4 million.

Impressive Growth Prospects

Street expects NXPI’s revenues and EPS to rise 18.4% and 27.6% year-over-year to $13.1 billion and $13.73, respectively, in fiscal 2022. In addition, NXPI’s EPS is expected to rise at an 11.1% CAGR over the next five years.

Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 11.12x, 34.8% lower than the industry average of 17.05x. Also, its forward EV/EBIT of 10.64x is 28.4% lower than the industry average of 14.86x. Moreover, NXPI’s forward Price/Cash Flow of 10.01x is 37.6% lower than the industry average of 16.03x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 18 Wall Street analysts that rated NXPI, nine rated it Buy, and eight rated it Hold. The 12-month median price target of $208.72 indicates a 39.1% potential upside. The price targets range from a low of $160.00 to a high of $320.00.

POWR Ratings Reflect Solid Prospects

NXPI has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. NXPI has a B grade for Quality and Growth. NXPI’s solid earnings and revenue growth potential is consistent with the Quality and Growth grade.

Of the 96 stocks in the B-rated Semiconductor – Wireless Chip industry, NXPI is ranked #23.

Beyond what I stated above, we have graded NXPI for Sentiment, Value, Stability, and Momentum. Get all NXPI ratings here.

Bottom Line

Robust financial performance in the last reported quarter and solid growth estimates position NXPI to witness a major upside in the near term. In addition, given the rising demand for semiconductor chips across various industries, the stock could deliver handsome gains in the near term. So, we think the stock could be a great bet now.

How Does NXP Semiconductors N.V. (NXPI) Stack Up Against its Peers?

NXPI has an overall POWR Rating of B, which equates to a Buy rating.  Check out these other stocks within the same industry with A (Strong Buy) ratings: United Microelectronics Corp. (UMC - Get Rating), Semtech Corporation (SMTC - Get Rating), and Broadcom Inc. (AVGO - Get Rating).

NXPI shares were unchanged in premarket trading Thursday. Year-to-date, NXPI has declined -33.49%, versus a -19.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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