In a report published Monday, analysts John Vinh and Kevin Chen at Pacific Crest raised their price target on NXP Semiconductors NV's (NASDAQ: NXPI) from $95 to $135 and maintained an Outperform rating.
On Monday, news came out about NXP planning to buy smaller peer Freescale Semiconductor Ltd (NYSE: FSL) in a deal valued at approximately $12 billion. According to Pacific Crest's report, this mega-merger "results in meaningful cost synergies and higher confidence in long-term sustainable growth." In their view, "this deal addresses longer-term concerns about Apple and mobile payments."
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Pacific Crest makes its positive-case based on "multiple key growth drivers in mobile, automotive and security." Additionally, the report highlights that "NXP is focused on high-performance, mixed-signal (HPMS) and analog products and is exposed to longer-term, steady product cycles," which the analysts expect will "provide increased visibility to meaningful and stable growth prospects over the longer term."
Furthermore, NXP is committed to returning free cash flow to shareholders and margin expansion, "as it focuses on growing its higher-gross-margin HPMS products in place of standard products."
Regarding the deal, the report points out its strategic value, and could generate more than $10 in long-term EPS. Moreover, it makes the resulting company the No. 1 supplier in auto and general purpose MCUs. The merger also "lessens NXPI's long-term dependence on mobility and Apple and creates leading franchise in automotive semis."
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