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NXP Semiconductors: Strong Q4 Supports Bullish Thesis

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NXP Semiconductors institution agency successful Silicon Valley

Michael Vi

Thesis

I person antecedently expressed a bullish statement connected NXP Semiconductors (NASDAQ:NXPI). And pursuing a beardown Q4 reporting, I americium assured to reiterate nan thesis. On nan backdrop of an expanding spot request successful nan automotive industry, paired pinch different fast-growing exertion verticals specified arsenic IoT, nan metaverse and AI, NXP is poised to seizure an charismatic business tailwind done 2030, perchance increasing apical statement astatine a 10 - 20% CAGR done 2030. With that framework of reference, NXPI is simply a 'Buy', and I cipher a adjacent implied stock value adjacent to $277.36.

For reference, NXPI banal is up astir 1.3% for nan past 12 months, arsenic compared to a loss of astir 8% for nan S&P 500 (SPY).

NXPI vs SPY 12 months performance

Seeking Alpha

NXP Q4 and FY 2022 Results

NXP closed nan FY 2022 pinch beardown Q4 results, beating expert statement estimates pinch regards to some gross and earnings. During nan play from September to extremity of December, nan European semiconductor institution recorded revenues of astir $3,312 million, arsenic compared to $3,039 cardinal for nan aforesaid play 1 twelvemonth earlier (9% twelvemonth complete twelvemonth growth), and compared to $3,300 arsenic estimated by expert statement estimates ($12 cardinal beat).

With regards to profitability, NXPI's GAAP gross separator expanded to 57.1% successful Q4 2022, versus 56.2% successful Q4 2021. Similarly, GAAP operating separator accrued by astir 3 percent points, to 29.6%. That said, NXP accumulated $1.21 cardinal of operating income successful Q4 (15% twelvemonth complete twelvemonth growth) and $4.8 cardinal for nan FY 2022.

NXPI Q4 2022 Results

NXPI Q4 2022 Results

With regards to NXP's segments, nan automotive unit, which is besides nan company's largest successful position of gross and profit, performed best: nan conception generated astir $1.81 cardinal of revenues, up 17% twelvemonth complete twelvemonth arsenic compared to Q4 2022, and up 25% complete nan afloat twelvemonth 2022.

On a FY 2022 twelvemonth complete twelvemonth basis, business & IoT, mobile and commercialized infrastructure & others were up 13, 14% and 15% respectively.

NXPI Q4 2022 Results - Segments

NXPI Q4 2022 Results

The institution besides returned $696 cardinal to shareholders successful Q4, pinch a full superior return to shareholders of $2.24 cardinal connected a trailing twelve-month basis. This brings NXP's equity return adjacent to 5%--which is, successful my opinion, exceptionally charismatic for a maturation company.

Confidently Stepping Into 2023

Reflecting connected a downturn successful nan semiconductor manufacture it is arguably not astonishing that NXP's Q1 2023 capacity will somewhat slow down arsenic compared to 2022 and 2021. For nan March quarter, guidance expects revenues betwixt $2.9 and $3.1 billion, which would bespeak a twelvemonth complete twelvemonth contraction of 8% and 1% respectively. The company's operating separator is expected successful nan scope of 26.1% and 28.5%, which would construe into an operating income scope of $760 and $880 million.

NXPI Q4 2022 Results - Guidance

NXPI Q4 2022 Results

NXP did not springiness immoderate update connected nan company's agelong word potential, which presumably indicates that erstwhile expectations stay intact: It is projected that nan semiconductor marketplace will turn quickly until 2030, perchance becoming a $1 trillion opportunity. The expanding digitalization of vehicles, including connected, autonomous, and electrical cars, is expected to beryllium a superior driver of this request surge for semiconductors. NXP Semiconductor, a awesome European spot shaper pinch 50% of its gross coming from nan automotive industry, is well-positioned to use from these semipermanent trends successful demand.

And NXP continues to seizure opportunities successful this estimated $1 trillion market. In Q4 2022, NXP introduced caller analog front-end and microcontroller families optimized for mill automation and electrical conveyance control, respectively, and expanded its IoT and business IoT solutions.

Valuation: Update Target Price

Reflecting connected beardown Q4 FY 2022 reporting, paired pinch a coagulated outlook going into 2023 and beyond, I now estimate that NXPI's EPS successful 2023 will apt grow to location betwixt $12.5 and $12.9. Moreover, I besides somewhat raise my EPS expectations for 2024 and 2025, to $14.3 and $16.05, respectively.

I proceed to anchor connected a 3.25% terminal maturation complaint (one percent constituent higher than estimated nominal world GDP growth), and a 9% costs of equity superior requirement, which I see reasonable.

Given nan EPS updates arsenic highlighted below, I now cipher a adjacent implied stock value of $277.36.

NXP valuation

Analyst Author's EPS estimates and calculation

Below is besides nan updated sensitivity table.

NXP valuation sensitivity table

Analyst Author's EPS estimates and calculation

Risks

As I spot it, location has been nary awesome risk-updated since I person past covered NXP stock. Thus, I would for illustration to item what I person written before:

Investors could reason that NXP's business, pinch 50% vulnerability to nan automotive manufacture is cyclical, and accordingly susceptible to an net contraction that is driven by an economical slowdown. Moreover, investors should besides statement that nan chip-maker manufacture is move and competitive. Consequently, immoderate loss/gain successful marketplace stock could consequence successful worldly downside/upwards revision for NXP's net potential. Investors should besides see that sentiment towards consequence assets specified arsenic stocks remains powerfully depressed. And fixed aggregate macroeconomic headwinds, NXPI banal whitethorn suffer from stock value volatility moreover though nan company's fundamentals stay unchanged.

Conclusion

On nan backdrop of a beardown Q4 report, I americium assured to reiterate my bullish thesis connected NXP Semiconductors. In proceed to judge that NXPI is well-positioned to use from nan expanding request for chips successful nan automotive manufacture and different increasing exertion verticals specified arsenic IoT, nan metaverse, and AI. With that framework of reference, I forecast that NXPI could perchance execute a 10-20% compound yearly gross maturation done 2030.

Given updated EPS estimates, a 4.25% terminal YoY maturation complaint and a 10% costs of equity, I now cipher a adjacent implied stock value for NXPI adjacent to $277.36. Buy.

This article was written by

Cavenagh Research floor plan picture

5y acquisition arsenic an finance expert for a awesome BB-Bank. Currently moving towards nan CFA charter. Passion for risk-assets (Growth, Contrarian, Emerging Market) ex-colleague and adjacent friend of Investor Express

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: not financial advise

Editor: Naga



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