The White House said that Dictator Xi would reconsider approving a possible $44 billion deal for Qualcomm Inc. to purchase NXP Semiconductors NV if it’s brought to him again.

QCOM Stock Chart

QCOM stock chart

QCOM stock looks like a sweet setup as it starts to round back up on the chart. I like the clearly defined stop-loss at $53.45 and a target price of $65.90.

QCOM has an insanely high Debt to Equity ratio of 17.64. Worse, it’s revenue has been falling for several years. The company has a Quick Ratio of 1.40 which is not very good but it’s not in immediate danger of being unable to pay its bills.

How is QCOM going to finance an estimated $44 billion to buy NXP Semiconductors? With such a high debt load, the company will have to turn to at least some stock dilution to finance the deal. There’s already more than $1.2 billion shares of QCOM stock outstanding so a huge stock offering would destroy QCOM’s share structure IMO. For financial reasons, I’m not playing QCOM stock on an NXP Semiconductor buyout.

NXPI Stock Chart

NXPI stock chart

NXPI stock looks like as good setup as the stock has been consolidating over the last couple of weeks. I like the clearly defined stop-loss at $79. The price target, if the catalyst is a $44 billion buyout by Qualcomm, that would put the stock price at $120.

I like NXPI stock more than I like QCOM. NXPI trades at with P/E ratio of 13.96 and a Forward P/E ratio of 9.64. The company has grown revenue nicely over the last few years.

NXPI has a Debt to Equity ratio of 0.60 which is not good, but it’s so much better than QCOM. NXPI has a Quick Ratio of 0.90 which is not great but it’s a lot better than QCOM.

In many ways, I see NXPI as the superior company to QCOM when it comes to financials and stock valuation. It’s sort of puzzling that NXPI would allow itself to be sold to a company that is in some ways its inferior; however, I guess everybody has their price.

In summary, it seems far better to play NXPI if we get renewed talks of a buyout coming next week.

Disclosure: I do not hold any position in QCOM or NXPI.

QUALCOMM and NXP Semiconductors In the News