Strong Earnings Growth Could Push Texas Instruments Stock To Recent High Of $198

TXN: Texas Instruments logo
Texas Instruments

Up almost 2x from its low in March 2020, at the current price of $179 per share, we believe Texas Instruments stock (NASDAQ: TXN) has further upside potential. The stock has risen from $93 to $179 off its March 2020 bottom, a little more than the S&P which increased by around 80% from its low. Further, the stock is up around 1.4x from the level it was at before the pandemic. However, we believe that Texas Instruments stock could rise another 10% to regain its recent high of $198, driven by expectations of steady demand growth and strong Q1 2021 results. Our dashboard What Factors Drove 91% Change In Texas Instruments Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise since late-2018 came despite an 8% drop in revenue from $15.8 billion in FY 2018 to $14.5 billion in FY 2020. Net margins rose from 35.4% to 38.7% over this period, which combined with a 5% drop in the outstanding share count, led to EPS rising 6% from $5.71 to $6.05 over this period.

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TI’s P/E (price-to-earnings) multiple jumped from 16x in 2018 to 27x by 2020 end, and has since risen to 30x currently. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 affected semiconductor demand and industrial activities. However, demand has since risen and this has benefited Texas Instruments’ business across all segments. This is evident from TI’s Q1 2021 earnings, where revenue came in at $4.29 billion, a jump of almost 30% from the $3.33 billion in Q1 2020. As operating expenses rose at a rate lower than the growth in revenue, operating margins rose from 37.4% to 45.2% over this period. Despite a higher effective tax rate, EPS rose around 1.5x from $1.25 to $1.89 over this period.

Additionally, with the lockdowns being lifted globally and manufacturing activities stepping up to pre-pandemic levels, we believe the company will see further revenue and margin growth in the medium term. These factors will raise investor expectations further, driving up the company’s P/E multiple. We believe that Texas Instruments stock can rise around 10% from current levels, to regain its recent highs of $198.

While Texas Instruments seems to be attractive, it is helpful to see how its peers stack up. Check out Texas Instruments Stock Comparison With Peers to see how TI compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


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