Uncertainties in the future of NXPI Semiconductors (NASDAQ:NXPI) sent the stock to a yearly low recently. Analysts have mixed views and are undecided over the prospects following the merger breakdown with Qualcomm (NASDAQ: QCOM). At a 12 times forward P/E, investors should look at the stock again but have an extended holding period to let the stock appreciate.
Cowen reiterated an outperform rating on NXP on Sep 13, setting a $114 price target. During the presentation at Deutsche Bank’s technology conference, Peter Kelly spoke about the businesses that are struggling. The network processor or digital network business is growing slowly. Intel (NASDAQ: INTC) did a good job on the software side in this space but NXP has 64-bit multicore design wins.
This has not yet translated into revenue yet. When the network processor market takes off for NXP through the automotive space (and ADAS), NXP’s stock will go up, too.
Two trends will give the company a tailwind: electrification and ADAS. In this space, NXP’s strength is radar transceivers and microprocessors.
So, as ADAS grows, through specialty radar growth of 20%, NXP will outgrow that by 1.4 percent. The company reiterated its forecast made two years ago, that in 2019, 10 percent of its automotive revenue will be from ADAS.
At these levels, NXP stock could have bottomed but if it did not and falls to the low $80’s, buying and holding for a few years will pay off. The stock is cheaper than BlackBerry (NASDAQ: BB) and Ambarella (NASDAQ: AMBA), both of which want to play in the ADAS space.
Disclosure: long NXPI stock
