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Buy NXP Semiconductors For An Upside Of 9% In 1 Month Or 15/20% In 3 Months, With Very Limited Downside Risk

Apr. 04, 2018 3:00 PM ETNXP Semiconductors N.V. (NXPI)QCOM138 Comments
Masbro Advisors profile picture
Masbro Advisors


  • NXP Semiconductors is currently under offer by Qualcomm and the deal will likely close in 1 month.
  • An even better outcome would materialize if the deal will not close, as NXP will likely trade around USD135 in 3 months.
  • Deal failure would let management free to reset guidance, do stock buy-backs, and tell the market how NXP changed and grew in the last 18 months (long time!).
  • NXP would likely re-rate once the cash cap of the deal is removed.

NXP Semiconductors' (NASDAQ:NXPI) operating performance is on a roll because most of its business is exposed to growing trends such as new connected cars filled with wireless and entertainment, driverless cars, and other applications in notebooks and mobile which require chips for traditional and secure connections. NXP, in particular, has the no. 1 market share in automotive, with 48% of its revenues in this industry.

The global car industry keeps growing and there is no sign of slowdown. See below the historical trends related to the number of car units delivered in the US each year. The US is now just back to the higher part of the cycle, which typically lasts around 5 years before decreasing again.

Source: FRED Economic Data

The remaining chunk of revenues (52%) are related to various industrial markets, mobile phones and other forms of communication, with average CAGRs of 8%.

NXP Semiconductors recently reported Q4 results which beat consensus expectations. For the quarter NXP delivered $2.5bn in sales with a record gross margin of 54%, driven by as 12% growth in the automotive segment and 31% in its connected-devices business.

The company is very cash generative, with $1.9bn of cash generated in 2017, $2.5bn expected by analysts for 2018 and $2.8bn for 2019, touching almost a 6% FCF/EV yield, which is very significant for a company expected to grow its EBITDA 25% between the actual 2017 result and 2019 consensus expectation.

The company has delevered very quickly since its most recent acquisition, Freescale, executed in 2015:

Source: Company

There is abundant space for the company to re-leverage its balance sheet and increase its ROE, or do buy-backs, or find another company like Freescale to buy. The semiconductors sector is consolidating quickly, with lots of M&A activity around the world.

The deal with Qualcomm (

This article was written by

Masbro Advisors profile picture
arbitrageur and special sits global investor and consultant

Analyst’s Disclosure: I am/we are long NXPI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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