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Streetwise for Sunday, May 31, 2020


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Streetwise for Sunday, May 31, 2020

A key player in the arena of analog and embedded processing is Texas Instrument (TXN). Note: An embedded system is one with a dedicated function within a larger mechanical or electrical system. Analogue refers to a continuously variable signal (current or voltage), in contrast to digital where signals (voltages) are basically two levels representing a zero or a one.

Texas Instruments is currently the world’s largest producer of analog chips, focusing its strategy on the industrial and automotive markets. Those markets provide both diversity and longevity, and the company is strategically well positioned in both.

When I last wrote about the company a year ago, my earnings estimate for 2019 was $5.65 per share, with a forecasted 12-month share price of $120. So how did the company do? Earnings came in at $5.24 per share, while the shares recently traded at about $117.

Texas Instruments reported first-quarter 2020 earnings of $1.24 per share, surpassing the Street’s consensus by nearly 23%. However, you need to consider that earnings were down 1.6% in a year-over-year comparison.

The company reported revenues of $3.33 billion, versus Street consensus by about 4.6%. However, that figure fell 7% from the year-ago quarter and 0.6% from the previous quarter.

A slowdown in the company’s Analog and Embedded Processing segments, and end-market softness especially in the automotive space impacted the top line negatively.

Nevertheless, product demand remained robust in March, and continued till early April because of customers’ apprehensions regarding procurement of supplies during the coronavirus-induced supply chain disruptions.

Unfortunately, Texas Instruments expects the downturn in customer demand to continue going forward, again because of COVID-19-induced recession. Nonetheless, strong investments in new growth avenues and its research and development endeavors remain positive.

Yet, the company remains confident that its portfolio of long-lived products and efficient manufacturing strategies will carry it forward despite the headwinds generated by Covid-19. Additionally, continuous returns to shareholders could potentially aid in a rebound in the companies share price. 

Meanwhile, revenues were down mid-single digits in the automotive market on year-over-year. To make matter worse, revenues within the communications equipment division decreased 50% from the year-ago quarter. Although computer revenues improved, mobile phone revenues were down.

Nevertheless, Texas Instrument’s revenues were up mid-single digits year over year in the industrial market. Furthermore, its enterprise systems space saw revenues increase double digits from the year-ago quarter.

Looking at some financials, gross margin fell 0.20% to 62.7% versus a year ago. Selling, general and administrative (SG&A) expenses expanded 1.00% year-over-year, while research and development expenses increased by $377 million. Operating margin was 37.4%, contracting 1% from the prior-year’s quarter.

As of Mar 31, 2020, cash and short-term investments were $4.7 billion, versus $5.4 billion as of Dec 31, 2019. At the end of the quarter, the company had long-term debt of $5.5 billion, versus $5.3 billion in the prior quarter.

Cash from operations came in at $851 million, down from $1.8 billion in the previous quarter. Free cash flow stood at $690 million.

For the second quarter, the company expects revenues of $2.61 billion to $3.19 billion. Earnings are expected in the range of $0.64 to $1.04 per share.

Texas Instruments dividend payout ratio is about 57% of earnings. This leaves enough capital to fund opportunities and was a conservative 43% of last yearís free cash flow. Meanwhile, dividends per share have grown at 21.6% per year over the past 10 years.

The intrinsic value of the shares using a free cash flow to the firm discounted cash flow model is $69.72. My earnings estimate for 2020 is $4.60 per share, with a forecasted 12-month share price of $123, for a 5% capital gain. And there is a 3.17% dividend yield.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to





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