Jefferies cuts NXP Semiconductors target to $300 from $325

Published 05/11/2024, 21:28
Jefferies cuts NXP Semiconductors target to $300 from $325

On Tuesday, Jefferies maintained its Buy rating on NXP Semiconductors NV (NASDAQ: NASDAQ:NXPI) but lowered the price target to $300 from the previous $325. The adjustment follows a recognition of headwinds in the Auto and Industrial sectors, particularly in Europe and North America, which are not entirely balanced by a stronger performance in China.

NXP Semiconductors, which reported results that fell short of expectations, is experiencing a downturn in market conditions across almost all regions except China. Despite specific growth areas within the company, such as Radar and S32 systems, along with Auto and Industrial-focused RFID technology, the overall macroeconomic decline is overshadowing these positive aspects.

The company has been guided towards a seasonal decline in March, coming off a low base in December. Although Jefferies models a high-single-digit decline, the firm suggests that the market may not give credit for this conservative outlook until there is an actual positive inflection in trends.

The global Purchasing Managers' Index (PMI) is now well below the 50-mark in both Europe and North America, indicating contraction in these regions. This has led to a cautious stance on whether this price target reduction will be the last, given the weakening data points in the Auto and Industrial sectors.

The firm's outlook indicates that while there are company-specific drivers that continue to outperform, the recent macroeconomic downturn is overpowering any positive developments. Expectations for seasonal declines in the first quarter after a soft December might be on the conservative side, but the overall view remains cautious due to the current economic climate.

In other recent news, NXP Semiconductors NV has been the subject of several recent developments. The company reported third-quarter revenue of $3.25 billion, a 5% year-on-year decline but a 4% sequential increase. Deutsche Bank (ETR:DBKGn) has adjusted its price target for NXP Semiconductors, reducing it to $285 from the previous $300, while maintaining a Buy rating. This adjustment follows a weaker forecast for the fourth quarter and first quarter due to macroeconomic conditions outside of China.

The company's gross margin is anticipated to fall below 58% for the first time since June 2022, expected to hit 47.5% in the fourth quarter and dip further in the first quarter. Despite these challenges, Deutsche Bank believes that NXP Semiconductors is handling the economic headwinds appropriately by managing inventory at the expense of revenue and gross margin.

Looking forward, the company projects a fourth-quarter revenue of around $3.1 billion and plans to return over $700 million to shareholders. NXP Semiconductors' non-GAAP earnings per share for the third quarter were $3.45, with a projected $3.13 for the next quarter.

Further details on the company's response to current challenges and future revenue and margin drivers are anticipated to be disclosed at the upcoming Analyst meeting scheduled for November 7.

InvestingPro Insights

NXP Semiconductors' current market position reflects both strengths and challenges, as highlighted by recent InvestingPro data and tips. The company's market cap stands at $56.73 billion, with a P/E ratio of 20.57, indicating investor confidence despite recent headwinds. An InvestingPro Tip notes that NXPI has raised its dividend for 6 consecutive years, demonstrating a commitment to shareholder returns even in challenging times.

The company's financial health appears robust, with an InvestingPro Tip highlighting that liquid assets exceed short-term obligations. This financial stability could provide a buffer as NXP navigates the current macroeconomic downturn in the Auto and Industrial sectors. Additionally, NXPI's strong return over the last five years, as mentioned in another InvestingPro Tip, suggests a track record of resilience through various market cycles.

However, investors should note that 20 analysts have revised their earnings downwards for the upcoming period, aligning with Jefferies' cautious outlook. This, coupled with NXPI trading at a high P/E ratio relative to near-term earnings growth, may explain the recent price target reduction.

For a more comprehensive analysis, InvestingPro offers 11 additional tips on NXP Semiconductors, providing deeper insights into the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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