The investment firm raised its price target on NXP to $213 a share from $190. The stock of the Eindhoven, Netherlands, company has seen its multiple expand significantly, Morgan Stanley said.
"After a period of outperformance, NXPI has closed the previous valuation gap relative to peers," analyst Craig Hettenbach said.
"We still like the company's position in autos and new growth drivers in areas like ultrawideband, the internet of things, and building management systems."
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The firm says that since the market bottomed during COVID-19, NXP has been a strong outperformer. And it has extended that momentum into 2021, he said.
NXP shares at last check were down 2.2% to $207.46. But they have well more than doubled off their 52-week low above $80, set almost a year ago. The shares were up by a third in 2021 through the close of Wednesday trading.
NXP has outperformed broad-based suppliers by 115%, according to Morgan Stanley, and the S&P 500 by 160%, driven by its inclusion into the S&P index in March. That rise gives NXP less room to run higher.
"Recent work from our equity strategy team points to multiple compression in 2021, placing a greater burden on estimate revisions from here," said Hettenbach.
"After significant upside to the company's [first-quarter] outlook provided in early February (revenue guided 10% above [Wall Street consensus] and earnings per share 23% higher, or [about twice] that of peers), meaningful EPS revisions are likely harder to come by near term."
In February, President Joe Biden signed an executive order addressing the chip shortage, which has hindered production in a wide range of industries, including cars and smartphones.