Craig Hettenbach upgraded NXP from Equal-weight to Overweight and upped the price target from $99 to $114.
NXP shares have underperformed the Philadelphia Semiconductor Index by 102 percent and peers by 73 percent in the last three years, Hettenbach said in the Wednesday upgrade note. (See his track record here.)
Since then, the company has seen a structural improvement in margins along with capital allocation optionality, the analyst said.
Notwithstanding the ongoing risks in the semiconductor cycle into the second half, Hettenbach said a number of company-specific elements — leaner distribution, levers to pull on margins and relative valuation after a period of significant underpeformance —make him constructive on NXP.
Given the semicycle risk, Hettenbach said he would recommend an opportunistic approach when adding to positions in NXP.
Morgan Stanley increased its target multiple by 2 times and said this multiple could prove conservative as margins expand.
"As the company executes on its strategy and investors regain confidence in the story, we see a stock multiple with a disproportionate skew higher."
The Price Action
NXP shares were trading down by 0.19 percent to $95.28 at the time of publication Wednesday.
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