UBS's recent global survey of semiconductor distributors and direct customers reveals a bottoming of expectations around lead times, indicating a potential upturn in orders in 2024.
The survey focuses on analog-discrete Microcontroller Units (MCUs), with positive implications for the broader analog sector. Despite relatively high inventory levels within distribution, direct buyers have reduced inventory, and approximately 15% report levels below target.
Along these lines, UBS analysts upgraded Texas Instruments (NASDAQ:TXN) to Buy with a $195 price target, up from $170.
The upgrade move is based on these survey findings, signaling optimism for the semiconductor industry as lead times stabilize and pricing remains strong.
“We upgrade TXN as we believe it should be among the first to see orders inflect higher given less reliance on distribution (i.e. for TXN there is very little lag time between orders and revenue turning higher) and TXN also has cleaner comps and fundamentals as it was one of the few companies not to employ supply agreements during the peak,” analysts said.
“The stock trades on orders and FCF – both of which look set to inflect positively. The strength of this survey leads us to raise our revenue forecasts 170bps in '24 and 450bps in '25, with our $21.6B in ’25 now 10% above consensus.”
“Further, the stock reflects a too-slow ramp in FCF, pricing in $6.1B vs our $7.3B ‘25 forecast, as TXN starts to get CHIPS grants/ credits (see pages 11-15 for additional investment points/charts on TXN such as market share, gross margin, cash flow, and comps),” the analysts concluded.
TXN stock rose 2% in early Friday trading, after ending the day 2.8% higher.