NXP Semi Pops 5% On Q3 Guidance Boost; Analyst Says Hold

Shares in NXP Semiconductors (NXPI) popped 5% in Thursday’s after-hours trading after the company boosted its performance expectations for third quarter 2020.

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“Relative to the mid-point of our guidance, we experienced material improvement in demand across all end markets, but particularly in the Automotive and Mobile end markets” commented Kurt Sievers, NXP CEO.

Specifically, NXP Semiconductors is now expecting Q3 preliminary revenue of $2.2B, $257M/13% above Street’s $2.01B estimate and $2B midpoint of the company’s previous guidance.

Non-GAAP Gross profit is now guided at $1.135B vs. the $980M midpoint previously, with gross margin of 50.1% up from the 49% prior guidance.

Finally, non-GAAP Operating Income of $586M comes in notably higher than the $444M midpoint of guidance, with the margin now expected to come in at 25.8% vs 22.2% previously.

Sievers added that demand also improved in both the company’s direct and distribution channels.

Meanwhile the business environment recovered at a faster than anticipated pace, says the CEO, driving a broad-based increase in revenue, which also enabled higher gross margin.

“Given the improved outlook, we increased operating expenses in relation to non-executive variable incentive compensation, which taken together, resulted in operating profit margin substantially above guidance,” he told investors.

NXPI is now trading up 6% year-to-date, and the stock scores a cautiously optimistic Moderate Buy Street consensus. That’s with 14 recent buy ratings and 5 hold ratings.

However the average analyst price target of $134 indicates marginal downside potential from current levels.

“Auto datapoints steadily improved through 3Q as the supply chain benefited from the restart of OEM factories following 1H COVID-19 closures” wrote Oppenheimer analyst Rick Schafer after the 3Q update.

Despite impressive operating margins, Schafer is sticking to the sidelines for now. “Long term, we like NXP’s competitive position in auto/industrial but await a better entry point. Maintain Perform rating” the analyst explained. (See NXPI stock analysis on TipRanks).