This year has been anything but fun for owners of NXP Semiconductors (NASDAQ:NXPI) stock. NXPI stock is down more than 34% from its recent peak. And that’s factoring in the stock’s recent bounce from last month’s low near $70 to the current price of $82.
One would be hard-pressed to say the selloff didn’t make sense. The Netherlands-based technology company fell short of its earnings estimates in the first and second quarters of this year. Meanwhile, the highly-anticipated acquisition of NXPI by Qualcomm (NASDAQ:QCOM) ended up being ultimately torpedoed by China’s feet-dragging.
The fact of the matter is, however, that the bears overshot their downside target, and NXPI stock is poised to recover.
Back on Track
NXPI is not exactly a household name. When investors and consumers think of semiconductor makers, companies like Intel (NASDAQ:INTC) and Texas Instruments (NASDAQ:TXN) come to mind. And the Netherlands isn’t exactly considered the cradle of technology.
That’s why NXP Semiconductors may be one of the market’s best-kept secrets. Nestled among bigger European countries, it’s quietly doing its own thing and once again doing it quite well.
The evidence is (finally) in the numbers. After falling short of earnings estimates in the first two quarters of the year, the company appears to be back on track. Wednesday evening’s third-quarter report included an operating profit of $2.10 per share on sales of $2.44 billion, versus analysts’ consensus outlook for a top line of $2.43 billion and operating income of only $1.92 per share of NXPI stock. That’ slightly better than the results that NXPI reported in the third quarter of 2017
What NXP lacks in pizzazz, however, it makes up for in reliability and transparency. Although NXPI’s top and bottom lines do not always increase year-over-year, they have been and continue to broadly improve.
The question remains, though: Was a Qualcomm buyout the only truly compelling outcome for owners of NXP Semiconductors stock?
Analysts Still Like NXPI Stock
That’s a question which will never be definitively answered, and the best-guess answers are mixed. But it’s curious how many analysts have become vocally bullish on NXPI stock after the Qualcomm deal officially fell through in the middle of the year.
Deutsche Bank analyst Ross Seymore is one of those optimists, writing in July in response to Qualcomm’s decision “While NXP acknowledged deal fatigue has impacted revenues in the past couple quarters, we believe the management team remains engaged and can address some of the incremental headwinds.” Mizuho’s Vijay Rakesh was and is also a fan, opining in July “We believe [NXP Semiconductors] is still the king in automotive.” Jefferies analyst Mark Lipacis thinks NXPI is well-positioned to capture more than its fair share of the Internet of Things market.
By and large, though, investors chose to see the glass as half-empty rather than half-full, preferring immediate gratification even if the immediate payoff may not have been as fruitful as the long-term one will be. Those doubters, however, may have made a crucial error.
Analysts’ consensus downside target on NXPI stock in the event of the failure of the Qualcomm deal was $92 per share. NXPI stock hit a low of $69.72 late last month, leaving it ripe for the post-earnings bounce. Indeed, the current price of $83 is still well below analysts’ consensus worst-case-scenario price and miles below analysts’ current consensus price target.
The Bottom Line on NXPI Stock
The rally of NXPI stock was not ideal. Thursday’s 11% gain has left behind a sizable gap that beckons to be filled in by a pullback. There’s no assurance that profit-takers won’t move NXPI stock towards that goal, and there’s no assurance that a small pullback won’t morph into a bigger one.
Even so, valued at a forward-looking price-earnings ratio of ten and sporting a consensus price target of just under $103, NXP Semiconductors stock is hard not to like. Bolstering the bullish case on NXPI stock are the five analysts who upgraded NXPI stock and/or initiated it with a favorable rating after the Qualcomm bomb was dropped. NXP Semiconductors stock might be a long-term play, but a multitude of pros have remained conspicuously bullish on this name even when most investors haven’t been. That has to count for something.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.