Key Takeaways:
- The 2-Minute Valuation Model values NXP Semiconductors at $315/share in 2 years.
- This implies that the stock has over 40% upside from its current share price.
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NXP Semiconductors is a wide-moat company that has traded flat over the past 3 years. As a result, it looks like the stock is strongly undervalued today:
Today, NXP Semiconductors powers the future of technology with its leadership in automotive chips and IoT solutions. The company could have a promising future as it capitalizes on trends like autonomous driving and smart devices.
What is the 2-Minute Valuation Model?
There are 3 core factors that drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
The 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share, or EPS, and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why $NXPI Looks Undervalued
Forecast
On NXP’s Analyst Estimates tab shown below, you can see analysts expect the company to grow revenue at a 7% compound annual growth rate over the next 3 years, with normalized earnings per share, or EPS, expected to grow slightly faster at 12.2% due to some margin expansion:
View NXPI Semiconductor’s full analyst estimates >>>
For context, over the past 5 years, NXP’s revenue grew at a 7.3% CAGR, while normalized EPS grew at 11.5% annually.
Valuation Multiple
NXP stock currently trades at around $217 per share, which means the stock trades at around 5 times next year’s expected revenue and just over 17 times next year’s expected earnings.
NXP has averaged a 17x forward P/E multiple over the past 5 years. Since the company is expected to see similar growth in the future as it’s seen historically, we’ll use the same 17x P/E multiple in our valuation:
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Today, the stock looks fairly undervalued.
Fair Value
3 years from now, NXPI is expected to reach about $18.41 in normalized EPS. We’ll use $18 in EPS in our valuation to be a bit more conservative.
At a 17x NTM P/E multiple, NXPI stock will be valued at $306/share in 2 years. We can add an extra $9 per share for the dividends that NXPI is expected to pay over the next 2 years, bringing the final fair value to $315 per share.
The NTM P/E multiple uses the expected earnings for the next twelve months, so a 2-year valuation uses 3-year EPS forecast figures.
With the stock trading at about $217 today, this implies that NXPI stock could rise 20.5% per year over the next 2 years, or 45% in total, to reach this fair value:
The market has averaged about 10% annual returns over the long run, so NXPI’s 20.5% expected annualized returns would exceed the market’s average and could beat the market for the next 2 years.
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Analysts’ Price Target
The consensus analyst price target for NXPI today is about $265 per share, which means analysts think the stock has nearly 20% upside from its current price.
You can see that analysts thought NXPI was undervalued when it dipped in 2022. Today, they think the stock is slightly undervalued again:
Analysts’ price targets can suffer from many biases and aren’t always accurate.
Still, looking at analysts’ consensus price targets can be a great way to get a “second opinion” on your own stock valuation.
TIKR Takeaway
Based on the 2-Minute Valuation Model, it looks like NXPI stock is undervalued today, and the stock could go up over 40% in the next 2 years.
Don’t take our word for it—try it out for yourself! Analyze NXPI or any stock you’re interested in on TIKR today!
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
