Why Morgan Stanley Sees a Lull for NXP Semiconductors

By Chris Lange Published Apr 8, 11:43AM EDT

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Why Morgan Stanley Sees a Lull for NXP Semiconductors — © Natee Meepian / iStock via Getty Images

NXP Semiconductors N.V. (NASDAQ: NXPI | NXPI Price Prediction) has been a big winner so far this year even outperforming the semiconductor industry as a whole. The stock has more than doubled off its pandemic lows, and despite this recent outperformance, one analyst sees it slowing down—at least for now.

Morgan Stanley downgraded the stock to an Equal Weight rating from Overweight but increased the price target to $213 from $190. This compares to the most recent closing price of $212.14.

The investment house said that it remains positive on NXP’s growth drivers and improved execution, although this now appears more appropriately reflected in the stock. This call could be early, considering the strength in the semiconductor cycle and the company’s lean inventory in the distribution channel that should serve as a tailwind to growth, albeit these dynamics seem widely recognized at this point.

Also, recent work from Morgan Stanley’s equity strategy team points to a multiple compression in 2021, placing a greater burden on estimate revisions from here. To this point, after significant upside to the company’s first-quarter outlook provided in early February (revenue guided 10% above Wall Street estimates and earnings 23% higher), more meaningful earnings revisions are likely harder to come by in the near term.

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On the back of multiple expansion seen across semis, Morgan Stanley raised its target price-to-earnings multiple from 21.0 times to 23.5 times, which ultimately led to the $213 price target. This multiple is at about a three-times discount to where peers are trading, which is slightly above the historical average. The brokerage firm emphasized structural improvements in NXP’s business and increasing cash returns, again highlighting the opportunity for multiple expansion. Currently, this valuation gap has closed and NXP now trades above its historical relative multiple.

Morgan Stanley concluded, “While we think the stock is fairly valued today, longer term we remain constructive on new growth drivers such as Batter Management Systems, Ultra-wideband, and IoT.”

Excluding Thursday’s move, NXP has outperformed the broad markets, with the stock up about 33% year to date. In the past 52 weeks, the stock was up closer to 144%.

NXP Semiconductors stock traded down about 2% on Thursday, at $207.89 in a 52-week range of $80.46 to $216.43. The consensus price target is $206.68.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.