NXP Semiconductors Now Worth $130, Evercore Says

In a report published Wednesday, Evercore ISI analysts maintained a Buy rating on

, while raising the price target from $90 to $130. In the report, Evercore ISI noted, "NXPI's acquisition of FSL takes us back a couple years where NXPI offered many levers for upside, namely topline growth, GM upside, solid opex control, lower interest expense, and reduced share count…all driving enormous leverage to the bottom line (NXPI reported ~45% EPS CAGR 2012-2014). We now have these multiple levers again - as we now model ~25% EPS growth in the 2014-2018 timeframe." "Overall, the combined company will have leadership positions across Automotive, Industrial, Networking, Identification, and RF with very complementary product portfolios and end market exposure with the only notable overlap in RF PA's (NXPI plans to sell its ~$300M biz vs. ~$750M biz for FSL). Auto will be the largest segments (~7-9% CAGR), representing ~28% of revenues, with a more complete portfolio leveraging FSL's MCU/Sensor businesses along with NXPI's leadership in keyless entry/networking/entertainment/lighting," the analysts added. "Pro forma for the transaction, NXPI's net leverage (net debt/NTM EBITDA) will stand at ~3.0x, a level not seen at NXPI since December 2011, and above the company's current ratio of 1.5x." The company may be able to bring the net leverage back to the current 1.5x by 3Q16 – only 6 Quarters from now. "Which begs the question – what will be NXPI's next accretive transaction and/or when will this leading high performance mixed-signal semiconductor company initiate a dividend? We see one of the two scenarios potentially occurring into the 2017-18 timeframe," the analysts commented. Evercore ISI added that its model "projects net leverage of 1.0x exiting CY17 – suggesting meaningful ammo for either the initiation of a dividend (2% yield at $125 stock price would require ~$850M in FCF in 2017 timeframe equating to ~25% of annual FCF) or another accretive acquisition."