BMO Raises Estimates For Texas Instruments After Earnings Beat

Texas Instruments Incorporated TXN reported a second quarter beat and guided to a fourth consecutive quarter of revenue decline.

The company has much higher free cash flow and earnings potential than it did in past cycles, according to BMO Capital Markets.

The Analyst

BMO’s Ambrish Srivastava maintained an Outperform rating on Texas Instruments while raising the price target from $130 to $150.

The Thesis

Texas Instruments reported second-quarter revenue and EPS at $3.67 billion and $1.29, respectively, both of which beat BMO’s estimates of $3.6 billion and $1.22, Srivastava said in the note. He added that the earnings beat was driven by higher gross margins of 64.3% and lower OpEx.

Among the key points noted by Srivastava was the company’s ability to ship a large portion of its products to Huawei. While adhering to the new rules, Texas Instruments was able to minimize their revenue impact.

As expected, the company guided to a modest year-on-year revenue decline in fourth quarter, with growth returning in first quarter 2020.

“TI has correctly observed that typical cycles are usually accompanied by 4-5 quarters of y-y declines before returning to growth,” Srivastava wrote.

EPS guidance for fourth quarter came in at $1.42, above BMO’s estimate of $1.31 and the consensus expectation of $1.38. The analyst raised the GAAP EPS estimates for 2019 and 2020 EPS from $5.04 to $5.37 and from $6.00 to $6.17, respectively.

Price Action

Shares of Texas Instruments had spiked 7.4% to $128.76 at time of publishing on Wednesday.