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NXP Semiconductors (NASDAQ:NXPI) is a secure connections business based in the Netherlands that appears to offer value and growth. It operates in diverse industries, ranging from automotive to wireless. A former division of Philips (NYSE:PHG), the corporation has been in existence since 2006.

The company is one of Credit Suisse's top investment picks. An article in the December 2nd issue of The Wall Street Journal also offers a compelling description of the stock and cites the Swiss firm's research. Per the newspaper's story, NXPI trades at a discount based on a forward price/earnings valuation:

  • Despite a 36% rise in sales over the past two years, leading to a 257% rise in earnings, NXPI trades at a 25% discount to its peers.
  • Though private-equity owners have a 24% stake, comparable chip makers such as Avago Technologies (NASDAQ:AVGO) and Sensata Technologies (NYSE:ST) traded at 12.5x forward earnings once their overhangs were below 60%.

The table below, produced on November 26th, and included in a Sterne, Agee & Leach report on Analog Devices (NASDAQ:ADI) shows NXP's discount to AVGO and several other peer companies. Only Skyworks Solutions (NASDAQ:SWKS) has similar figures; except on 2014E Free Cash Flow ("FCF") / Share. Summary data (available on Yahoo! Finance) shows that NXPI, at a share price of $42.79, trades at the same 10.4x 2014E earnings multiple listed below; however, there are 16 concurring opinions. Moreover, the consensus five year growth estimate is over 35%. Using these metrics, the stock is a steal:

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Sterne, Agee reiterates a Buy recommendation, with the rest of Wall Street. The firm particularly likes NXP's EMV, or payment technology chip, prospects. While EMV is associated with MasterCard (NYSE:MA) and Visa (NYSE:V), who it is named after, it falls under NXP's:

High-margin ID segment…is a big long term opportunity…the EPS opportunity given broad EMV tailwinds conservatively is $1.20-$1.30, which at a 10x multiple should add to NXPI valuation…relative to the ~1B U.S. card opportunity, there is 1) globally an additional ~1.5B payment cards with only ~45% EMV penetration and 2) an untapped opportunity with an incremental 1.2-2.5B potential consumers in India+China.

Meanwhile, the company's financial situation has been improving, as past problems have been associated with the discount. In his prepared remarks recorded during the Q3 Conference Call Transcript, CFO Peter Kelley, who has been with the company since March, 2011, says:

We exited the quarter with net debt of the $2.76 billion, a reduction of $56 million, and a trailing 12-month adjusted EBITDA of approximately $1.3 billion, resulting in a net debt of trailing 12-month adjusted EBITDA leverage ratio of 2.15x. I'm confident we'll be below our 2x leverage ratio during the fourth quarter, which is a significant milestone for the company.

As of August 5th, NXP B.V. has a BB- credit rating and positive outlook with Standard & Poor's. Here is a graphic from YCharts showing how the company has lowered debt while increasing FCF:

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While paying down notes has been important, NXP is emphasizing returning capital to shareholders through its buyback program. The graphic above illustrates how feasible it is. Repurchasing shares makes sense given the discounted stock and is continuing. While the program is not voracious, CEO Richard Clemmer says "With a significant discount to our peer trading, clearly, our focus will be on repurchasing shares." Here is a graphic from YCharts showing a share count lower than it has been in years:

(click to enlarge)

NXP Semiconductors is making a case as a sensible investment. It trades at a steep discount to its peers and management is increasing shareholder value through timely buybacks. It also has a catalyst in worldwide implementation of EMV technology.

Source: Growth, Value, NXP Semiconductors