Texas Instruments on Track for Growth, Recovery in Key Markets And More: Analyst
JP Morgan analyst Harlan Sur reiterated an Overweight rating on Texas Instruments Inc (NASDAQ:TXN) with a price target of $230, up from $195.
Sur said Texas Instruments delivered solid June quarter results, reflecting the start of the cyclical recovery from the March quarter bottom.
The end markets and geographies that were first to enter this downcycle are now returning to seasonal demand patterns and growing, while end markets that were last to enter the downcycle, like Auto and some segments within Industrial (automation), are in the final phases of excess inventory workdowns, as per the analyst.
Sur flagged the company, noting half of the subsegments within industrial bottoming, which is encouraging. China also rebounded strongly after seven quarters of revenue decline on broad-based end-market demand, which is in line with commentary from its diversified peer NXP Semiconductors (NASDAQ:NXPI), the analyst noted.
Texas Instruments guided sales up 7% Q/Q for the September quarter, aligning with consensus expectations and seasonal trends. Sur noted that the growth outlook suggests a more normalized customer and end-market profile and that Texas Instruments is shipping closer to consumption trends in the second half of the year. Bookings continued to improve through the quarter for the second consecutive quarter, and backlog cancellations and pushouts continued to decline.
Sur remains encouraged by the slew of positive data points, indicative of a sustained multi-quarter revenue recovery profile. Overall, this aligns with his preview expectation, where he expected out-year positive EPS revisions over the next several quarters as industry shipments move back towards consumption trends after 6-8 quarters of under-shipping consumption on top of seasonally more robust second-half demand trends.
Looking ahead, Sur expects Texas Instruments to drive a continued recovery profile through the remainder of the year and into 2025.
The analyst noted that on the supply side, Texas Instruments continues to expand its manufacturing footprint well ahead of demand, and inventory days remain at the high end of the company's target level. Gross margins bottomed at ~57%+ in the first half of the year, and Sur noted modest gross margin expansion as they exit the year, driven by better revenue and fixed cost absorption.
While Texas Instruments is still focused on spending $5 billion in gross capex this year, Sur expects a net capex of $4 billion as the team will receive $1 billion in cash from the U.S. investment tax credit initiative. The analyst expects the ITC and Chips Act grant dollars to offset some of the capex spending in calendar years 2025 and 2026.
Price Action: TXN shares traded higher by 0.03% at $198.36 at last check Wednesday.
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