Why Texas Instruments Could Report An Earnings Beat Despite Semiconductor Industry Headwinds

by Trefis Team
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Texas Instruments (NASDAQ: TXN) will release its Q4 and full-year 2019 results on Wednesday, January 22. For FY 2019, Trefis estimates revenues to decrease by around 6.7% to $14.72 billion, primarily due to the semiconductor supply glut and US-China trade tensions weighing down on demand. However, it is slightly higher than the consensus estimate of $14.25 billion. Also, we expect the EPS figure to have declined to $5.19 despite a drop in the share count, primarily due to a more significant reduction in revenue as compared to expenses. Further, the EPS figure would be marginally higher than the consensus estimate of $5.13.

However, we believe that the stronger-than-expected earnings for FY 2019 would be overshadowed by negative revenue and earnings growth and will likely result in a slight negative movement in Texas Instruments’ stock price once it announces earnings.
Our forecast indicates that Texas Instruments is valued at $129 a share, which is roughly 2% lower than the current price of around $132.

Trefis shines the spotlight on key assumptions and data for Texas Instruments, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Texas Instruments’ FY19 earnings in our interactive dashboard.

A] Revenues are expected to be above consensus estimates

  • A drop of $650 million in Analog semiconductor revenue to be the key driver of the $1.06-billion decline in TI’s total revenue.
  • The ongoing US-China trade tensions, combined with the semiconductor supply glut, are expected to be the primary factors weighing down on the company’s sales.
  • Trefis estimates Texas Instruments’ 2019 revenues to be $14.72 billion, roughly 3.3% above the consensus estimate of $14.25 billion

A separate interactive dashboard for Texas Instruments provides an in-depth view of Texas Instruments’ revenue trend and segment-wise revenue performance, along with forecast for 2019.

B] EPS likely to narrowly beat consensus estimates

  • As we forecast Texas Instruments’ Revenues to fall at a faster rate than Expenses in 2019 (6.7% vs. 4.9%), this will result in a 120 bps decrease in TI’s Net Income Margin figure from 35.1% in 2018 to 33.9% in 2019.
  • Texas Instruments’ 2019 earnings per share (EPS) expected to be $5.19 per Trefis analysis, slightly higher than the consensus estimate of $5.13 per share

C] Stock price estimate slightly below the market price

  • A trailing P/E multiple of 24.9x looks appropriate for Texas Instruments’ stock, which is somewhat lower than the current implied P/E multiple of 25.7x
  • Trefis’ forecast for Texas Instruments’ 2019 earnings is slightly higher than consensus, while that for the P/E multiple is lower than market expectations. As a result, we arrive at a fair value of $129 for Texas Instruments’ stock as opposed to the current market price of roughly $132

Additionally, you can input your estimates for Texas Instruments’ key metrics in our interactive dashboard for Texas Instruments’ FY19 earnings and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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