Texas Instruments' Diverse Auto And Industrial-Focused Portfolio Poised To Gain From CHIPS Funding, Analyst Says

 

 


  • Oppenheimer analyst Rick Schafer reiterated Outperform on Texas Instruments Incorporated TXN with a $185 price target.

  • TXN reports earnings on Jan. 24. 

  • Industrial (41%) was flat Q/Q in the third quarter. Management highlighted signs of a broad slowdown as PMI trends turned negative. The segment would likely post a decline Q/Q in the fourth quarter.

  • The analyst found medical, aero and defense relatively insulated.

  • Auto (21%) held up well in the third quarter, growing 10% Q/Q. The segment would likely grow again in the fourth quarter as supply constraints eased further, aided by xEV/ADAS trends.

  • Personal Electronics (24%) was down 15% Q/Q in the third quarter and likely to decline again in the fourth quarter. The analyst saw PC and handset verticals down through 2023. 

  • Comm Equipment (6%) and Enterprise Systems would likely decline in the fourth quarter. 

  • Comm Equipment appeared poised for recovery as 5G RAN capex spend recovers.

  • The analyst saw an in-line set up to fourth quarter consensus sales/EPS of $4.6 billion/$2.00, but downside risk to Street's first quarter of $4.4 billion/$1.87 as the cyclical correction progresses. 

  • Customer bookings were decelerating for most as cancellations pick up. 

  • Extended lead time orders were most impacted. 

  • Early last summer, demand weakness in personal electronics spread to broader markets, including industrial which started the previous quarter. 

  • The analyst characterized this as the classic "first cut," historically followed by roughly three more. 

  • The analyst saw Texas Instruments among the best positioned to benefit from U.S. CHIPS funding materially. 

  • Launched in the second half of 2022, RFAB2 added $5 billion in capacity. LFAB geared up for an additional $4 billion capacity to be ready in the first half of 2023. 

  • The analyst liked Texas Instruments' diverse auto and industrial-focused portfolio, with the CHIPS, call option serving as wild cards to boost FCF return.

  •  

TXN Price Action: Texas Instruments shares traded lower by 1.17% at $170.71 Thursday at publication.

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