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On Friday, Citi maintained its Neutral rating on shares of Texas Instruments (NASDAQ:TXN), with a set price target of $200.00. The decision comes ahead of the semiconductor company's scheduled capital management call with its CEO on Tuesday, August 20.
The firm anticipates that Texas Instruments may announce a reduction in its capital expenditures, which are currently projected at $5.0 billion annually through 2026. This expectation is based on the company's recent trend of lowering its depreciation forecast for two consecutive quarters, coupled with revenue growth that has not met expectations.
The upcoming call is also expected to provide insights into the potential bottoming out of the company's margins. Texas Instruments has experienced a significant decrease in operating margins, which have dropped by 22% from 53.6% in the first quarter of 2022 to 31.7% in the same period of 2024.
Citi's analysts are looking for signals that could indicate a turnaround in margins, which they believe could potentially double earnings per share and lead to a more positive view of the company's stock.
Citi had previously downgraded Texas Instruments in January 2022 due to concerns over sharp declines in margins. However, the firm suggests that if margins were to recover to their previous peak levels, this could result in substantial earnings per share growth.
Such a scenario could prompt a more constructive stance on the stock. For now, Citi remains on the sidelines, adopting a wait-and-see approach until there is more certainty regarding the bottoming of margins and the consequent impact on the company's financial performance.
In other recent news, Texas Instruments has secured up to $1.6 billion in funding from the U.S. Commerce Department as part of the CHIPS and Science Act. This support will contribute to the construction of three new manufacturing facilities within the United States. Additionally, the company is expected to benefit from an investment tax credit estimated between $6 billion and $8 billion from the U.S. Treasury Department.
Analysts have offered various insights into the company's future. TD Cowen has maintained a Hold rating on Texas Instruments, anticipating consistent capital expenditure and future free cash flow potential. KeyBanc Capital Markets has raised its price target on the company's stock, citing a resurgence in the China market and signs of recovery in the Industrial sector.
Stifel has reiterated its Hold rating, suggesting adequate market expectations. Lastly, Truist Securities has increased the stock's price target, noting the company's market positioning and management's deeper engagement with investors.
In terms of earnings and revenue, Texas Instruments reported second-quarter revenue of $3.8 billion, a 4% sequential increase. The company's third-quarter forecast anticipates revenues between $3.94 billion to $4.26 billion, with earnings per share estimated at $1.24 to $1.48.
These recent developments highlight the company's strategic investments and growth in key markets.
InvestingPro Insights
As investors anticipate Texas Instruments' (NASDAQ:TXN) capital management call, InvestingPro data reveals a nuanced picture of the company's financial health. With a robust market capitalization of $184.37 billion, Texas Instruments is trading at a high earnings multiple, with a P/E ratio of 34.7. This valuation reflects a premium compared to the industry average, which could factor into investor expectations for future performance.
Despite concerns over a potential sales decline, Texas Instruments has a proven track record of rewarding shareholders, having raised its dividend for 20 consecutive years. This is underscored by a dividend yield of 2.58%, and the company's ability to maintain dividend payments for an impressive 54 years straight, signaling a commitment to returning value to investors.
Investors should note that analysts have revised their earnings upwards for the upcoming period, indicating a positive sentiment that may counterbalance the anticipated sales decline. Moreover, the company's liquid assets exceed short-term obligations, providing financial flexibility in a challenging market environment.
For those seeking a deeper dive into Texas Instruments' financial prospects, InvestingPro offers additional insights, with 17 more InvestingPro Tips available at https://www.investing.com/pro/TXN. These tips provide a comprehensive analysis that could guide investors in making an informed decision ahead of the crucial capital management call.
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