We've been asking ourselves recently if the market has placed a fair valuation on NXP Semiconductors. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
A Lower P/E Ratio Than Its Sector Average but Trades Above Its Graham Number:
NXP Semiconductors N.V. offers various semiconductor products. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, NXP Semiconductors has a trailing 12 month P/E ratio of 18.5 and a P/B ratio of 6.04.
NXP Semiconductors's PEG ratio is 1.83, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $9,407 | $8,877 | $8,612 | $11,063 | $13,205 | $13,177 |
| Gross Margins | 52% | 52% | 49% | 55% | 56% | 56% |
| Operating Margins | 28% | 7% | 5% | 23% | 28% | 28% |
| Net Margins | 24% | 3% | 1% | 17% | 21% | 21% |
| Net Income (MM) | $2,272 | $272 | $80 | $1,906 | $2,833 | $2,811 |
| Net Interest Expense (MM) | $310 | $370 | $362 | $369 | $427 | $437 |
| Depreciation & Amort. (MM) | $2,173 | $2,047 | $1,988 | $1,262 | $1,250 | $1,187 |
| Earnings Per Share | $6.72 | $0.85 | $0.18 | $6.79 | $10.55 | $10.56 |
| Diluted Shares (MM) | 346 | 286 | 284 | 276 | 264 | 257 |
| Free Cash Flow (MM) | $2,297 | $1,847 | $2,090 | $2,310 | $2,832 | $2,641 |
| Capital Expenditures (MM) | $2,072 | $526 | $392 | $767 | $1,063 | $967 |
| Net Current Assets (MM) | -$4,796 | -$6,730 | -$6,372 | -$8,866 | -$8,561 | -$7,871 |
| Long Term Debt (MM) | $6,247 | $7,365 | $7,609 | $10,572 | $11,165 | $10,171 |
| Net Debt / EBITDA | 0.78 | 2.11 | 2.22 | 2.01 | 1.45 | 1.33 |
NXP Semiconductors has slimmer gross margins than its peers, weak operating margins with a stable trend, and EPS growth achieved by reducing the number of outstanding shares. On the other hand, the company benefits from growing revenues and decreasing reinvestment in the business and healthy leverage. Furthermore, NXP Semiconductors has irregular cash flows.
