NXP Semiconductors: Cautious Optimism Driven by Auto Segment

Key Points

• NXP Semiconductors reported solid results supported by automobile markets. 
• The dividend is attractive and offers value. 
• The stock may move up to a new all-time high but hurdles exist for the market. 

NXP Semiconductors NV NASDAQ: NXPI confirms details seen in reports from Texas Instruments Inc. NASDAQ: TXN and On Semiconductor Corp. (NASDAQ: ON). The news from NXP is better than Texas Instruments, and includes outperformance and an increase in guidance supported by company diversification. 

NXP Semiconductors, like Onsemi, has excellent exposure to the automobile industry, sustaining operations while other markets correct. Because the auto demand centers on electrification and self-driving capability, it should not slow down soon. Eventually, consumer demand will return, reaccelerating business for NXP Semiconductors. Between then and now, NXP Semiconductors has positioned itself to outperform its peers (and pays a nice 2.45% dividend). 

NXP Semiconductors isn’t the only semiconductor stock paying a dividend, but it is among the more attractive and offers some value. Texas Instruments pays a better yield but offered a bleak forecast. Shares are moving lower, which is part of why it has a better yield.

Broadcom also has a better yield but trades at a higher multiple and doesn’t have the same exposure to automobiles. The payout from NXP Semiconductors has a yield near 2.5% and well above the broad market average. It comes with a good growth outlook. NXP doesn’t have a long history of distribution increases. Still, in the four years it has increased the payout, balance sheet and 23% payout ratio says the company will continue raising the distribution for the foreseeable future. 

NXP Semiconductors Moves Higher on Mixed Results 

NXP Semiconductors had a mixed quarter regarding segment performance and growth, but the results beat the MarketBeat consensus and have the shares moving higher. The company reported $3.12 billion in revenue, which is down slightly compared to last year, but it beat consensus by 420 basis points. The automobile segment drove the strength almost entirely, which grew by 17%, but communications helped with a 7% increase. The industrial and mobile segments were the weak links in the chain, declining by 26% and 35%, and they may not bounce back this year. 

The margin news is also mixed but ultimately favorable to share prices. The gross margin expanded but was offset by increased SG&A and R&D expenses. This left the adjusted earnings down compared to last year but 560 bps above consensus to outpace the topline strength by more than 150 bps. The good news in the report, the news that may keep this stock moving higher, is the guidance. The company issued guidance for the second quarter that is above consensus on the top and bottom lines, suggesting the full-year estimates are significantly off. 

“Solid first-quarter results, guidance for the second quarter, and our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through the cyclical downturn in our consumer-exposed businesses, while we see continued strength in our automotive and core-industrial businesses,” said Kurt Sievers, NXP president and chief executive officer.

The Technical Outlook: Ready to Spring Higher 

NXP Semiconductors is up more than 3% following the first quarter results and confirms support at the bottom of a trading range. The stock may move upward within the range, but there are hurdles to cross. The first is near $200 — the critical line. If the market cannot move above this level, it will remain range bound at current levels. However, if it can move above $200, it could move up to retest the top of a larger range near $230.