Barclays says buy NXP as recent selling pressure presents opportunity

In a research note to investors, Barclays analyst Blayne Curtis upgraded NXP Semiconductors (NXPI) to Overweight arguing that the recent selling pressure presents a buying opportunity. Last week, his peer at Goldman Sachs also upgraded the stock to Buy on "sufficiently discounted" valuation. BUYING OPPORTUNITY: Barclays analyst Blayne Curtis upgraded NXP Semiconductors to Overweight from Equal Weight, arguing that recent selling pressure presents a buying opportunity. While the analyst acknowledged that he debated this move given the company's high auto exposure and Qualcomm (QCOM) disruption, he noted that the stock had taken "too much pain." He sees earnings per share moving higher given the $5B buyback, which is not fully reflected in estimates. From a revenue perspective, Curtis argued that many discrete items like SIS and Digital Networking are less of a headwind, while 5G should be tailwind. NXP is also "good at managing costs" in a potential downturn, and asset sales are another opportunity to boost capital returns, he contended. Further, Curtis told investors that he believes fundamentals in the U.S. Semiconductor space are not falling as fast as the stock prices. However, he lowered his price target on NXP Semiconductors' shares to $95 from $105. 'SUFFICIENTLY DISCOUNTED' VALUATION: Last week, Goldman Sachs analyst Toshiya Hari upgraded NXP Semiconductors to Buy from Neutral while lowering his price target on the shares to $85 from $106. The analyst acknowledged that uncertainties remain around NXP's competitive positioning within Automotive following the termination of Qualcomm's proposed takeover, but argued that the stock is now "sufficiently discounted" relative to history and peers to warrant a constructive view. While Hari would agree with the market that NXP deserves to be discounted versus peers primarily given competitive concerns in the Automotive business and a structurally lower growth rate, the current gap in valuation points to an attractive risk/reward, he added. Additionally, the analyst said he views margins as an opportunity if management can successfully execute over the coming quarters. Going forward, Hari forecasts continued expansion in gross margins, but would view divestitures as a source of potential upside, with management pointing to non-strategic businesses they might sell in "the next year or two" that could provide 100bps of gross margin. PRICE ACTION: In morning trading, shares of NXP Semiconductors have dropped almost 1% to $75.89.