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This Firm Is Still Selling Texas Instruments On Lofty Valuation, Apple Exposure

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This Firm Is Still Selling Texas Instruments On Lofty Valuation, Apple Exposure

Goldman Sachs is still selling Texas Instruments Incorporated (NASDAQ: TXN) and sees 16.5 percent downside to its price target of $51 due to elevated multiples and limited headroom for additional margin optimization.

The brokerage also expects the company's exposure to Apple Inc. (NASDAQ: AAPL) provide further earnings and multiple risk over the next twelve months.

On the margin front, Texas Instruments increased its gross margins 830 bps between 2012 and 2015 by cutting 540 bps from opex (primarily R&D) as a percent of revenue over the same period. However, Goldman sees little room for these decreases to continue.

"We believe further R&D cuts would jeopardize what we already view as a tepid top-line growth environment and accordingly do not model further opex reduction," analyst Toshiya Hari wrote in a note.

Meanwhile, TXN shares still trades at an elevated level despite concerns around future growth headwinds. Hari said the stock's current NTM P/E is nearly 10 percent above the company's 5-year average and represents a 2.2x turn premium to GS' analog coverage and a 5.7x turn premium to the SOX.

Hari expects the stock to re-rate negatively once investors fully appreciate the company's limited headroom for further cost reductions.

At the time of writing, shares of Texas Instruments fell 0.60 percent to $60.71.

Posted-In: Goldman Sachs Toshiya HariAnalyst Color News Price Target Reiteration Analyst Ratings Best of Benzinga

 

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