On Wednesday, Evercore ISI updated its outlook on Texas Instruments (NASDAQ:TXN), raising the price target to $255 from the previous $225 while maintaining an Outperform rating on the stock. The firm's increased confidence in Texas Instruments follows what it identifies as early signs of a significant rebound in earnings expected within the next two to three quarters.
The firm's analysis suggests that Texas Instruments is currently shipping 27% below consumption due to the supply chain depleting inventories. This situation is anticipated to change, with a notable 20% quarter-over-quarter growth in China revenues seen as a precursor to global trends once the inventory correction phase concludes. The firm's 2025 earnings per share (EPS) estimate of $8.62 stands 36% above the consensus.
Evercore ISI highlights three momentum indicators that support a buy rating for Texas Instruments. First, it projects year-over-year revenue acceleration from a 16% decrease in the second quarter of 2024 to increases of up to 35% over the following four quarters.
Second, the Days of Inventory (DOI) metric, which peaked in the first quarter of 2024, is expected to continue declining, thereby improving visibility. Lastly, the firm forecasts that free cash flow per share (FCF/Shr), which reached a trough of $1 in the first quarter of 2024, will double to $2 by the end of 2024 and increase to $14 over the subsequent four years.
The firm also notes that Texas Instruments' gross margins are structurally higher, with a 75-85% fall-through rate before higher depreciation expenses, an improvement over the previous 70-75% model. This is attributed to a higher mix of 300mm wafers and the transfer of external foundry wafers to internal fabrication facilities.
Additionally, Texas Instruments has confirmed share gains in the automotive sector, particularly in radar and in-car connectivity solutions. This aligns with Evercore ISI's own proprietary channel checks conducted in June.
The firm concludes with a strong endorsement of Texas Instruments as a top pick, emphasizing the company's potential for the best free cash flow per share growth story in the semiconductor industry.
In other recent news, Texas Instruments Incorporated (NASDAQ:TXN) (TI) has reported a mix of challenges and growth in its latest earnings call. The company revealed a second-quarter revenue of $3.8 billion, a 4% sequential increase but a 16% decrease compared to the previous year.
Despite declines in the Analog and Embedded Processing segments, TI is forecasting revenue between $3.94 billion to $4.26 billion for the upcoming quarter, with earnings per share estimated at $1.24 to $1.48.
These projections are supported by sequential growth in China and strong performance in the personal electronics sector. Furthermore, TI has announced planned investments in capacity, particularly within the industrial and automotive markets. Despite year-over-year declines in certain markets, the company is seeing growth in the Personal Electronics and Communication Equipment sectors.
These recent developments indicate a cautious yet optimistic outlook for Texas Instruments, with a focus on strategic investments and growth in key markets.
Future expectations include a 7% overall growth in Q3 revenue, as well as an anticipated strong Q3 performance in the personal electronics sector. The company's China business, which grew about 20% sequentially in Q2, is also showing signs of recovery.
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