NXP Stock Jumps on Earnings. Auto Investors Should Pay Attention.
October 9, 2020
Automotive chip company
prereleased better than expected third quarter numbers and the stock jumped in premarket trading, with a gain of about 5.2%.
It’s good news for NXP (ticker: NXPI) shareholders, but also for the automotive sector as well: Things are getting better faster than expected.
For the three months ending in September, NXP (ticker: NXPI) generated $586 million in operating profit from just under $2.3 billion in sales. Wall Street was looking for about $450 million in operating profit from $2.2 billion in sales.
Analysts were taking their cue from the company, which forecast about $440 million of operating profit and $2 billion in sales back in July. That was when the company reported a second-quarter loss as sales plummeted 18% year over year as a result of the pandemic.
Back then, for the three months ended in June, NXP reported $1.8 billion in sales. Before Covid, analysts expected the company to generate about $2.3 billion in sales during the second quarter. It was a lousy quarter for NXP and everyone else tied to the automotive value chain.
For the third quarter, again before the pandemic, analysts expected NXP to generate almost $2.5 billion. The gap during the second quarter was about $500 million in lost sales. For the third quarter, the gap versus pre-pandemic expectations was less than $100 million. Things are getting better.
“We experienced material improvement in demand across all end markets, but particularly in the automotive and mobile end markets,” said CEO Kurt Sievers in the company’s news release. “Additionally, demand improved in both our direct and distribution channels. The business environment has improved at a faster than anticipated pace.”
It’s a solid data point for semiconductor and automotive investors. Susquehanna analyst Christopher Rolland increased his NXP price target from $110 to $140 after the news, pointing out that automotive end markets account for about 50% of NXP’s sales. He rates shares the equivalent of Hold.
Auto makers and auto parts suppliers don’t report earnings until later in October, but wholesale inventories are very low. Auto sales fell amid pandemic, but auto production plummeted as the pandemic led to plant shutdowns. Auto makers—and their suppliers—need to restock dealers’ inventories. That dynamic could be showing up in NXP’s results
Year to date, NXP stock was up 6% as of Thursday’s closing price. That’s far better than most automotive companies.
(GM) stock, for instance, is down about 12%, worse than comparable returns of the