Goldman Sachs Sees 31% Upside In NXP Semiconductors

NXP Semiconductors NV NXPI reported robust 1Q16 results and laid out its medium term strategy and financial targets. Goldman Sachs’ Toshiya Hari upgraded the rating for the company from Neutral to Buy, while raising the price target from $80 to$110.

The company outlined cost synergy targets of $500 million annually exiting 2017 and capital allocation plans involving continued buybacks and a dividend payment by end-2017.

Catalysts For The Stock

Analyst Toshiya Hari expects NXP Semiconductors to meet its proposed cost synergies, while delivering consistent revenue outperformance and recording gradual margin expansion. Balance sheet deleveraging is also expected to act as a catalyst for the stock.

“We believe the combination of 1) above-industry growth driven by content gains in the core automotive semiconductor business, 2) cost synergies stemming from the Freescale integration, and 3) deleveraging of the balance sheet are likely to drive both the fundamentals of the company and its stock higher,” Hari wrote.

NXP Semiconductor’s current stock valuation does not reflect the company’s growth potential, not its ability to generate cash, and thus de-lever the balance sheet, the analyst commented.