(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
NXP N.V. (NXPI) shares have been rising as its shareholders battle with Qualcomm Inc. (QCOM) in an attempt to get Qualcomm to raise its $110 bid for the NXP's stock. But with NXP trading at nearly $118.00, or 7% higher than Qualcomm's offer price, the market seems to be telling us NXP should do just fine without Qualcomm should the takeover attempt fall through.
NXP does not need Qualcomm to thrive, finding itself in a position where it can do quite well on its own, with a strong portfolio of products in high growth sectors such as automotive chips and wireless technologies. In the third quarter of 2017, NXP had total revenue of $2.28 billion, of which 41% came from automotive chips, growing at 11% from the prior year. (For more, see also: Qualcomm's Bid for NXP Still Lacks Investor Support.)
Analyst estimates are calling for earnings to rise by 11% in 2018 and 9% in 2019, a healthy growth number assuming the forecasts have not been watered down due to the pending acquisition by Qualcomm. At that valuation, NXP is trading at only 14.8 times 2019 earnings estimates of about $7.98, according to Ycharts.
Twists and Turns
Another twist is that Broadcom Ltd. (AVGO) made a bid to purchase Qualcomm and has made it clear that it would prefer Qualcomm not to pursue NXP. Qualcomm could find itself in a position of needing to close the NXP deal to fight off Broadcom. It was noted in a previous Investopedia article that Qualcomm might have to pay as much as $145 per shares to arrive at the full value for NXP.
Lack of Performance
One thing seems clear: NXP did not benefit in 2017 like the rest of its chipmaker peers. Over the past 52 weeks shares of NXP have only increased by roughly 21%, versus gains of nearly 52% for Broadcom and the iShares PHLX Semiconductor ETF (SOXX) which has climbed by almost 45%.
For now, there is a waiting game, but that game should end soon enough.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.