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What Do Analysts Think about NXP Semiconductors’ Stock?

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Jan. 4 2017, Updated 7:35 a.m. ET

NXP’s growth potential raises optimism among analysts

In this series, we’ve learned that things have started to improve for NXP Semiconductors (NXPI) as it’s started to realize the benefits of its Freescale acquisition. NXP’s earnings and cash flows have improved, it’s on track to divest its Standard Products division, it’s moving fast in the IoT (Internet of Things) space, and it has partnered with Google (GOOG) for the same.

All this has raised optimism among analysts that NXP is on a growth path. Those analysts who earlier called the NXP-Qualcomm (QCOM) merger a great deal now feel that NXP could have delivered strong growth to its shareholders even without being acquired. Even NXP’s management is positive about its future growth potential and is welcoming bullish investors to take a position in Qualcomm, its new owner.

NXP’s stock price rose 24% in just two days of the announcement of its merger with Qualcomm. Qualcomm’s stock price rose 8% during the same period.

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Analysts’ recommendations

As seen in the above graph, no top automotive semiconductor companies have “buy” recommendations from Wall Street analysts. In fact, NXP has a strong “hold” recommendation, as analysts’ expect its stock to reach an average price target of $110, the price Qualcomm agreed to pay per share for NXP. At present, NXP’s stock is trading at a discount of 10.7% to this price target.

The bullish estimate for NXP is $120, which is unlikely to materialize unless NXP receives a counter bid. Looking at the possibilities, very few technology companies have strong enough cash reserves to counterbid an offer as big as $47 billion. If the likes of Samsung (SSNLF), Apple (AAPL), or Google decide to move back in the supply chain and venture into the automotive and IoT spaces, NXP may seem like a better bet.

On the other hand, analysts have mixed recommendations for Qualcomm. The NXP merger could bring strong growth opportunities for the smartphone chip giant, which was hit by slow growth. QCOM’s stock has an average price target of $74.5, and it’s currently trading at a discount of 10.2% to that target.

Meanwhile, STMicroelectronics (STM) and Texas Instruments (TXN) both have “strong hold” recommendations, and they’re trading above their median price targets of $8.99 and $74, respectively.

NXP will trade in the market for at least one more year before it’s integrated with Qualcomm.

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