Q3 Preview: Texas Instruments (TXN) Not Immune to Macro Slowdown, Inventories May Help

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Texas Instruments ( TXN ) is trading higher ahead of their third quarter earnings report, scheduled for release after the market closes today. Shares are up about1.1% in afternoon trading.

The company is expected to report an EPS of $0.69 on revs of $3.69 billion. Last quarter, the company posted an EPS of $0.62 on revs of $3.5 billion. Last year, TXN had an EPS of $0.42 on revs of $2.88 billion.

Consensus views this quarter are a 77% and 31% pop to last year's Q3 EPS and revenue estimates, respectfully.

Shares of the stock have increased moderately though their third quarter, 12% to $27.14 at the end of September. The stock is currently trading 13% higher since the start of 2010, and 6.7% since the end of the third quarter.

A simple valuation reveals shares going for a P/E of 11.5x FY11 EPS estimates, compared to 17.3x for Qualcomm (Nasdaq: QCOM) and 10.8x for STMicroelectronics ( STM ).

Data from Bloomberg has 22 analysts with a Buy rating, 15 with a Hold, and three recommending to Sell. The analyst price target average is $29, with a High of $36 and a low of $22.

Analyst Ratings Through the Quarter
Analysts have been rather quiet on TXN following their second quarter earnings release in July.

In August, Raymond James upgraded the shares from Market Perform to Outperform, and BMO lowered TXN from Outperform to Market Perform.

Susquehanna downgraded from Buy to Neutral, sort of, noting that they are not immune to a macro slowdown. They said that they were resetting their rating to be more constructive when conditions improve.

September saw Caris lower semis, and TXN from Average to Below Average.

Summary
Texas Instruments narrowed its outlook in September, seeing an EPS range of $0.66 - $0.72, compared to the previous range of $0.64 - $0.74. Revs were narrowed from $3.55 - $3.85 billion to $3.62 - $3.78 billion.

Wedbush sees TXN offering stability given the tightened guidance and broad-based strength driven by embedded and analog growth. A richer product mix should provide modest gross margin tailwinds. Wedbush notes that management has said Q310 should see growth across all segments sequentially. Lead times continue to reduce as capacity controls come online. Inventories have been mixed as sell-in is matching sell-out, resulting in lean inventories, but customers are adjusting inventory to more match lower demand. Wedbush has an Outperform and price target of $34 on the shares. They're looking for an EPS of $0.69 on revs of $3.7 billion.

Deutsche Bank also expects Texas Instruments to report in-line with the Street consensus, no surprise there. Embedded processing and analog units should outperform. They note that "OMAP strength in Wireless continues to offset relative underperformance in basebands." They do see some caution in their Q410 outlook based on softer demand in semi's similar to its peers. Key items to watch are analog market share gains, gross/operating margin trends, inventories, and stock buyback plan updates. Deutsche has a Hold rating on the shares, with a price target of $27.00.

With shares seeming to trade fairly valued, and macroeconomic conditions priced in, look for the conference call on Q410, FY10 outlooks to drive investor interest in the shares this quarter.

Texas Instruments Inc. is expected to release their Q310 earnings on Monday, October 25, 2010, at approximately 4:30pm EDT. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: QCOM , STM , TXN

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