Texas Tools NASDAQ:TXN the dividend is unique among chipmakers for its yield, if nothing else. The stock yields over 3.15%, which is double or better than the rest of the sector, and is a safe and growing distribution.
Key points
- Texas Instruments struggled in the first quarter, but signs point to end-market normalization and a return to growth.
- Cash flow and balance sheet remain healthy and place the company in a good position for recovery.
- Analysts are raising their price targets following the release, leading the market higher.
- 5 stocks we like best about Texas Instruments
- Dividend yield
- 2.95%
- Annual dividend
- $5.20
- Track record of increasing dividends
- 20 years
- Annualized three-year dividend growth
- 10.51%
- Dividend payout ratio
- 73.65%
- Recent dividend payments
- February 13
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The dividend alone may not be a reason to buy the stock, but the opportunity becomes more attractive when you add in the prospects of a corporate recovery and upward pressure from analyst revisions. In this scenario, the stock price could rise over the next 12 to 18 months, driven by revenue, earnings recovery and an upward-trending consensus price target.
Texas Instruments is unlikely to see a similar AI-based push NVIDIA NASDAQ:NVDA OR Advanced microdevices NASDAQ:AMD, but it is moving towards the normalization of the end market and a return to growth, and artificial intelligence is in this context. Texas Instruments focuses on edge and vision applications, which are critical to the second wave of artificial intelligence.
Texas Instruments: The Dark Time Before the Dawn
Texas Instruments struggled in the first quarter, but the details and outlook suggest this is the dark before the dawn. Revenue fell 16.4% for the first quarter due to weakness across all segments, and forecasts call for another quarter of contraction. However, in line with expectations, the contraction will slow and the expected normalization of the end market will soon turn into a tailwind that will push growth. The Other segment was the weakest of the segment, contracting 33%. Embedded fell 21.6% and analog fell 14%.
Margin news is bad, but not as bad as expected. The company’s gross margin contracted 820 basis points, compounded by lower operating costs, to leave GAAP earnings down 35%. GAAP earnings include a 10-cent favorable impact from unexpected items, leaving adjusted EPS at $1.20, down 75 cents from last year, or 40.5%.
As negative as the impact of the contracting business is, the company is still in solid financial shape and paying dividends. Cash flow was negative for the quarter due in part to investments in production and inventories, both of which increased: the increase in assets offset the decline in liquidity. Debt is also increasing, but well within safe levels. The increase helped position the company for its recovery and left leverage ratios in a fortress position. Total liabilities are only 1.1 times equity, while long-term debt is about 0.75 times equity.
Analysts take Texas Instruments to new highs
Texas Tools
(At 2:51 p.m. ET)
- 52 week interval
- $139.48
▼
$188.12
- Dividend yield
- 2.99%
- P/E ratio
- 24.60
- Price target
- $176.68
Analyst response to Texas Instruments’ first-quarter release is shareholder-friendly. The 7 analysts tracked by Marketbeat in the first hours following the report included reiterated ratings and price targets and five upward revisions. The target range is from just below consensus to $210, assuming the stock is fairly valued at current levels with the potential to rise.
The consensus rating is flat compared to last year, but is rising from the low formed earlier this year, providing an edge to the market. If this trend continues, TXN stock will likely rise throughout the year. JPMorgan analysts expect the company to drive “a continued recovery profile into the second half of the year and into 2025,” a situation that will lead analysts to raise targets. JPMorgan’s new target is $195, a 10% upside and a multi-year high.
Texas Instruments rises within a range
Texas Instruments is moving higher but may struggle to set a new all-time high until later. The market is facing strong resistance at multiple levels within a trading range that could limit gains. However, assuming the recovery shows some strength over the course of the year and analysts respond favorably, a sustained uptrend is possible. In this scenario, TXN stock price action could increase incrementally within the range, testing and facing resistance at $185, $190, and $200 on its way to a new all-time high. The risk is that the recovery takes longer than expected, resulting in volatility within the range.
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