NXP Semiconductors NV (NXPI) grows revenue by identifying key verticals such as automotive and by engaging in a financial strategy that will allow this semiconductor company to eventually grow the p/e multiple on its stock, says William Stein, Managing Director at SunTrust Robinson Humphrey.
“My top pick remains NXPI,” Stein said. “NXPI has a combination of what I see as idiosyncratic revenue growth, from its identification end market, new microcontroller products, and its automotive end market, significant cost savings throughout its P&L and financial leverage.”
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Stein says NXPI is not expected to see meaningful EPS growth from delevering, as some people discuss, but that the company will rather buy back stock in the second half of 2013 and early 2014, lifting EPS estimates and p/e multiples.
“The company has stated that when it achieves 2.0 times net leverage — I model that happening in 4Q13 — it will re-evaluate its use of excess cash, which is currently allocated to debt repurchase. I expect the company to start buying back stock in late 2013 to early 2014. This will lift EPS estimates, and I expect it to lift the p/e multiple on the stock as well,” Stein said.
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