What’s The Outlook For Texas Instruments?

by Trefis Team
-1.58%
Downside
131
Market
129
Trefis
TXN
Texas Instruments
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Texas Instruments (NASDAQ: TXN) designs and manufactures semiconductors to sell to electronics designers and manufacturers all over the world. These include analog and power management products, processors, microcontrollers, and connectivity products.

Trefis has a price estimate of $126 for Texas Instruments’ stock, slightly lower than its current price of about $130 per share.

You can view our interactive dashboard analysis – Texas Instruments Valuation: Expensive or Cheap?

We can break down the stock price estimate into 4 factors: Stock Price = (Total revenue x Net income margin / No. of shares outstanding) x P/E Ratio

A] Estimating Total Revenue

  • Texas Instruments’ total revenue has grown from $13.37 billion in 2016 to $15.78 billion in 2018, on the back of strong demand, especially for analog semiconductor products.
  • The recent drop in consumer electronics demand and fading demand from China could weigh on analog revenues.
  • However, the advent of 5G could support analog revenues, which are expected to stay mostly flat over the next 2 years.
  • Embedded revenue is expected to suffer, with the current semiconductor downcycle, but things should improve by mid-2020.
  • We expect total revenue to drop marginally over the next 2 years, to about $15.51 billion in 2020.

B] Estimating Net Income using Net Margins

  • Net income margin growth in 2018 was largely driven by higher pricing, and higher gross margins from the analog segment.
  • We expect margins to hover around 34.9% in both 2019 and 2020, even amidst a lack of revenue growth, due to the company’s continued efforts to keep costs low.

C] Estimating EPS using shares outstanding

  • In 2020, we expect net income to drop slightly from 2018 levels.
  • However, share repurchases could help support EPS, helping maintain it around 2018 levels.

D] Estimating share price using P/E multiple

  • Texas Instruments’ current P/E multiple is around 24x.
  • However, with no significant growth in sight for both revenues and EPS over the next 2 years, we expect it to hover around 22.3x in 2020.
  • This puts our price estimate at around $126 per share.

 

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