CLSA Initiates NXP Semi At Buy, Places $105 Target

CLSA’s Christopher Caso believes after the successful acquisition of Freescale Semiconductor Ltd FSL, NXP Semiconductors NV NXPI “has taken the lead as an industry consolidator, leveraging its scale to pursue a strategy focused on participating in market segments in which it has a sustainable advantage.”

Caso initiated coverage of NXP Semiconductors with a Buy rating and price target of $105.

Compelling Stock

The analyst expects the company to see EPS of $7.47 in 2017 and 8.54 in 2018, and potential upside to these estimates to be driven by margins, free cash flow use and divestiture of non-core businesses.

“Street expectations have come down, however, compared to when the FSL merger was first contemplated, and we think this has driven investor concerns and negatively affected the stock,” Caso noted.

Related Link: Goldman Sachs Sees 31% Upside In NXP Semiconductors

Caso believes the stock is compelling at the current levels, given NXP Semiconductors’ valuation, focused strategy and diversified market exposure, especially automotive.

Long-Term Growth

“We like NXP’s long-term approach to creating value, seeking to participate only in markets in which it dominates,” the analyst stated, while adding that “the strategy employed by NXP’s management team since returning to the public markets in 2010 has been to more narrowly focus its efforts on the segments where it has a clear advantage.”

These markets offer the company the ability to invest significantly more heavily that its peers to maintain its competitive positioning.

“Going forward, we feel that a focused business strategy represents the best path toward sustainable profit growth given the realities of a maturing semiconductor industry,” Caso pointed out.