NXP Semiconductors drops as Citi downgrades on limited margin upside
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NXP Semiconductors (NASDAQ:NXPI) shares fell on Tuesday as investment firm Citi downgraded the semiconductor stock, noting the company's margins are near their peak.
Analyst Christopher Danely downgraded NXP (NXPI) from buy to neutral and lowered the price target to $190 from $240, pointing out that while it should continue to see strength from its automotive business, it will be "difficult for the stock to outperform until a correction resets the bar."
NXP Semiconductor (NXPI) shares fell nearly 2.5% to $169.05 in premarket trading on Tuesday.
Danely noted that automotive accounted for 50% of NXP's 2021 revenue and gross margins expanded 5.1% to 55.7%, up from 50.6% in 2020. Operating margins rose even more, going to 29.7% from 21.4% in 2020, leaving "very limited upside."
"Now that NXP margins have expanded, there is only 50 basis points left to peak gross margins and 100 basis points left to peak operating margins," Danely wrote.
The analyst added that other semiconductor stocks, such as Analog Devices (ADI), On Semiconductor (ON), Global Foundries (GFS) and Micron Technology (MU) could expand margins further. 
Last week, Wells Fargo noted that some cracks are starting to show in the broader chip market, though companies that receive an "outsized" portion of their revenue from the automotive market, including NXP Semiconductor, may do better than the sector as a whole.