UPDATE: Credit Suisse Reiterates Neutral Rating, Raises PT on Texas Instruments

In a report published Wednesday, Credit Suisse Group reiterated its Neutral rating on Texas Instruments

, and raised its price target from $26.00 to $32.00. Credit Suisse noted, “It's difficult to be absolutely negative on TXN - the core Analog and Embedded franchise is a stable/consistent producer of FCF (33% of rev in C4Q12) and management is committed to returning FCF to shareholders (84% in C4Q12); however, we continue to be confused by/suspect of the lack of operating leverage in the model. Investors will likely give TXN a free pass on the lack of leverage as the cycle is bottoming, but TXN's significant amount of excess capacity and an evolving business model make operating leverage highly dependent on revenue growth which is not consistent with our expectation for a lackluster industry recovery. Specifically, in C1Q we are confused why GM is likely to decline 150bps q/q despite (1) under-utilization charges which are expected to be flat to down q/q and (2) a richer mix of Analog/Embedded - the margin profile looks more commodity Analog than high performance. Long-term, we are concerned that a 5-year ‘normal' seasonal pattern for Core TXN produces a negative CAGR and is certainly not consistent with excessive growth - even assuming sequential growth rates 100bps ABOVE seasonal and incremental GM of 75% implies that TXN will not hit 55% GM until 2020. Liquidity, stability of franchise and FCF deployment will ABSOLUTELY provide downside protection but with TXN trading at 30x annualized C1Q EPS of 28 cents, we see more attractive Analog names like LLTC (21x annualized C1Q EPS) and ADI (20x C1Q annualized EPS).” Texas Instruments closed on Tuesday at $33.46.