The apparent failure of the takeover of NXP Semiconductors (NASDAQ:NXPI) by Qualcomm (NASDAQ:QCOM) places NXP at a crossroads. Most holders of NXP stock expected Qualcomm to have absorbed the company by now. However, the deadline for the merger looms, and China will likely not approve NXP’s purchase in time. Hence, NXP faces an unexpected future as an independent company.
However, with NXP’s involvement in the latest tech innovations, NXPI stock can still prosper.
China Unlikely to OK Merger Before Deadline
Most of the focus on NXPI stock has centered around the acquisition from Qualcomm. This merger awaits approval from the Chinese government. However, under the agreement, the takeover has to be completed by Wednesday. The U.S.’s ongoing trade war with China casts doubt on gaining such approval.
Also making approval unlikely was the Trump Administration’s move to block a takeover of Qualcomm by Broadcom (NASDAQ:AVGO). The government cited China-related national security concerns as the reason for the blocked merger.
Given that the U.S.-China trade war keeps intensifying, the Chinese are unlikely to allow themselves to look weak by approving the merger. Assuming this merger does not occur, the deal requires Qualcomm to pay a $2 billion termination fee to NXP. Hence, despite approval from eight other competition authorities, it appears QCOM and NXP will not merge.
NXPI Stock Can Prosper on Its Own
Hence, the question becomes: “What’s next for NXP?” Many felt the company needed the Qualcomm merger. However, NXP has positioned itself well in many of the newer growth markets. For one, NXP was named one of the most impactful Internet of things (IoT) companies. The company’s IoT devices focus on security as well as advanced connectivity for data transport.
Moreover, NXP chips play a crucial role in self-driving vehicles. They provide the technology that allows cars to sense and act according to driving conditions. Its security solutions also provide banks, government and other institutions with protection to operate securely in a mobile and wireless-driven environment.
The future of NXPI stock reflects such innovations. Revenue grows at double-digit rates. It also saw a massive increase following the takeover of Freescale in 2015. Profit growth has also seen double-digit percentage increases. Over the last five years, average annual net income growth stood at 17.59%. Analysts believe the next five years will see even higher growth — they predict an average annual growth rate of 27%.
Also, considering its earnings, NXPI stock trades at a reasonable valuation. If consensus earnings of $6.88 per share hold up for 2018, the forward price-to-earnings (PE) ratio will come in around 15. This places the forward PE below that of QCOM or Nvidia (NASDAQ:NVDA). Also, with average income growth of 27% predicted, 15 stands as a low PE for such high growth.
Final Thoughts on NXPI Stock
NXPI stock is in a position to grow — despite the likely failure of the Qualcomm merger. NXP had expected to become part of Qualcomm by now. However, the Chinese government appears unlikely to approve the takeover in the midst of a trade war. This forces NXP to exist as a standalone entity for the time being.
Despite the failed merger, NXPI stock still should grow. NXP’s self-driving car technology, IoT capabilities, and security features should remain in demand. As a result, analysts believe the company will see a higher growth rate than it enjoyed in the previous five years.
Also, with a low multiple, investors can experience NXP’s massive growth at a low cost. Given the company’s product offerings, profit growth, and low valuation, NXPI stock can still profit investors.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.