NXP Semiconductors (NASDAQ: NXPI) is trending higher and on track to hit the $300 level. The company’s diversified business, position in the industrial chip market, and pivot back to growth are why. It will take a little more time for end-market normalization to turn into a business tailwind, but the signs are good that it is happening, and analysts are taking note. 

The first significant analyst revision following the Q1 release is from Bank of America. Analyst Vivek Arya highlights the company’s soft-landing management approach and takes note of the value. The stock is trading at only 18X its earnings outlook, which is expected to be the low point in the cycle. Peers such as Texas Instruments (NASDAQ: TXN) and Analog Devices (NASDAQ: ADI) trade closer to 40X, suggesting the value is deep. Mr. Arya maintained a Buy rating and a $300 price target, which is significant. The $300 target is the highest on Wall Street, issued by numerous firms, and 15% above the post-release price action. 

The analysts’ consensus price target reported by Marketbeat.com lags the price action now that results are in, but the trend leads the market. The consensus is up 28% compared to last year and 1.75% in the month ahead of the report, with 90% of the fresh targets above consensus. That trend is unlikely to change. 

Diversified Business Sustains Strength at NXP Semiconductors 

[content-module:CompanyOverview|NASDAQ:NXPI]NXP Semiconductors struggled in Q1, but its diversified business model and position in the industrial chip landscape helped it sustain its strength. The company reported $3.13 billion in net revenue for a gain of 0.3% over last year. The top line is as-expected on strength in the Industrial/IoT and Mobile segments, up 14% and 34%. Communications is down 25%, and the core Automotive business is down 1%. Automotive is worth 57% of the Q1 revenue and is expected to return to growth by fiscal year-end. 

Margin news is mixed, with gross and operating margins moving in oppositive directions, but the net results are relatively flat compared to last year. The salient point is that GAAP earnings of $3.24 are up 150 bps from last year due to margin resilience, outpacing the top-line growth and $0.06 ahead of the consensus. The strength plays into the guidance, which forecasts top and bottom-line strength relative to the analysts' estimates. 

The guidance is favorable despite the expectation for a 5% YOY contraction in revenue. The projected $3.125 billion mid-point is ahead of the analysts' consensus, and the top end of the range allows for significant outperformance. The bottom line is also expected to be strong at $3.20 compared to $3.07. 

NXP Semiconductors Pays A Significant Dividend

NXP Semiconductors generates ample cash flow, with the free cash flow running at 20% of the revenue in Q1. Capital returns in Q1 amounted to 90% of the free cash flow and are expected to remain solid through year-end. The Q1 payout annualizes to over 1.6% and is compounded by share buybacks. Repurchases effectively doubled the dividend yield in Q1 and helped to reduce the average share count by nearly 1%. 

The price action in NXPI stock is showing a trend-following signal. The rebound began a week before the earnings release, with the market advancing from the 150-day EMA. The market is wrestling with resistance at an all-time high now but is indicated higher by the stochastic. A move to new highs would trigger a buy signal in the MACD, raising the strength of the signal from buy to strong buy. In that scenario, this stock could increase to the $300 region by fall, possibly higher if the analysts continue raising their targets.