Buy NXP Stock Because of Strength in the Auto Market
October 5, 2020
Car sales have been slammed, but Wall Street analysts looking down the road see signs of better times. That is good news for
and several other automotive-linked shares.
NXP (ticker: NXPI) is the “beneficiary of improving auto trends,” wrote
analyst Ross Seymore in a Monday research report. He increased his sales and earnings estimates for the latest quarter to $2.1 billion and $1.18 per share. The rest of Wall Street is looking for $2 billion and $1.10.
NXP will report its third-quarter earnings at the end of October. No firm date has been set.
About 44% of NXP’s business is destined for cars. The company makes chips that enable top-of-the-line safety features such as autonomous driving, advanced “infotainment” equipment, and battery-management systems for electric cars.
The auto business has been hurt by the Covid-induced recession. Car sales in the U.S., Europe, and China—the three largest new-car markets in the world, with 2019 sales of about 61 million vehicles—fell roughly 36% year over year, cumulatively, in February, March, and April.
In August, however, combined sales for the three regions were essentially flat, thanks to a bounce back in China. Chinese sales rose about 11% year over year, hitting about 2.2 million vehicles for the month.
The improvement is driving other analysts to take their stock-price targets higher as well. Morgan Stanley analyst Craig Hettenbach raised his NXP target from $122 to $147 Monday. The average target among analysts has risen from about $125 to $132 since NXP reported second- quarter earnings in July.
Hettenbach, like Seymore, rates shares at Buy. Wall Street, broadly speaking, agrees with both of them. More than 70% of analysts covering NXP shares rate them the equivalent of Buy, while the average Buy-rating ratio for stocks in the
Dow Jones Industrial Average
is about 58%.
The bullish take on NXP is good news for semiconductor stocks such as
(STM.France) which have large auto franchises, too. It is also positive for traditional automotive suppliers that make products for electrification and infotainment such as
That quartet is up about 2% year to date, on average. Aptiv and STMicro are up, while Borg and On are down.
Year to date, NXP shares are up about 2%, close to the comparable returns of the
and the Dow. Shares were up about 2.1% in midday trading after the bullish call from Deutsche Bank.