John Pitzer, Managing Director at Credit Suisse Group, says NXP Semiconductors NV’s (NASDAQ:NXPI) margin upside and mispriced asset are reasons behind his “buy” rating on the stock.
[NXP is] a company that went through a major transformative acquisition at the end of last year when they brought Freescale […] We think it’s one of those unique names where you’ve got a significant operating margin upside. You’ve also got deleveraging opportunities because they put debt on the balance sheet to buy Freescale and generate a lot free cash flow from the acquisition. You also have the ability to buy back stock, thus you are going to have superior earnings growth.
What we really liked about this name is we think the market is fundamentally mispricing the asset. NXP has always been viewed by investors as sort of an Apple play with socket risk. I think that is fair because there was a point in NXP’s history where Apple was about a third of the incremental revenue growth. Apple’s never really gotten to be greater than an 8% customer for NXP core.
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