What Nobias says about Texas Instruments (TXN) stock
Summary
The U.S. Department of Commerce recently introduced new rules and regulations on semiconductor exports to China.
These headlines caused the iShares Semiconductor ETF (SOXX) to sell-off by nearly 10% during the last week.
However, credible authors and analysts believe that Texas Instruments is a bargain after its recent weakness, offering double digit total return potential.
In recent days news has broken regarding steps taken by the U.S. government to regulate the export of certain semiconductors to China. A CNBC report on the news published this week stated, “On Friday, the U.S. Department of Commerce introduced sweeping rules aimed at cutting China off from obtaining or manufacturing key chips and components for supercomputers, in what is seen as a huge escalation in tensions between Beijing and Washington in the technology sphere.”
The report continued, “China’s ambitions to boost its domestic chip industry has likely become magnitudes more difficult and costly after the U.S. launched some of its most wide-ranging export controls related to technology against Beijing.”
Not only has this increased political tensions between the world’s two largest superpowers, but it has negatively impacted semiconductor stocks due to fears of slowing sales and increased uncertainty regarding potential counter-measures put into place by the Chinese Community Party.
The stock market hates uncertainty. And therefore, many of the most notable semiconductor stocks and brands have experienced precipitous sell-offs in response to this news. During the last 5 days, the iShares Semiconductor ETF (SOXX) has fallen by 9.3%.
And yet, this near-term sell-off has created long-term buying opportunities in the minds of several credible authors and analysts that the Nobias algorithm tracks. In recent days we’ve seen a slew of bullish reports published on Texas Instruments (TXN), a $143 billion semiconductor company, which is down by nearly 7% during the last week alone.
Historically, TXN shares have provided investors relatively defensive returns due to its market leading status and its generous management team, when it comes to shareholder returns. TXN’s recent dip has pushed its dividend yield up above the 3% threshold. Texas Instruments has also been known to reliably reduce its outstanding share count with share buybacks, helping to provide investors with peace of mind. And, with negative sentiment surrounding the semiconductor space, these are the aspects of TXN shares that several credible individuals have highlighted as they look for attractive values amongst the beaten down semiconductor stocks.
TXN Oct 2022
Bullish Nobias credible authors:
Geoff Considine, a Nobias 5-star rated author, recently published an article titled, “Texas Instruments Can Continue To Outperform Semiconductor Industry” which highlights his bullish outlook on Texas Instruments moving forward.
Considine said, “Texas Instruments (NASDAQ:TXN) has performed much better than the chip industry so far in 2022. TXN has a total return of -11.8% for the YTD vs. -40.4% for the semiconductor industry as a whole (as calculated by Morningstar) and -37.7% for the iShares Semiconductor ETF (SOXX).” He noted, “It has been a bleak year for investors holding semiconductor stocks, but TXN has been a bright spot. While the consensus outlook is for an earnings decline in 2023 and slower earnings growth over the next several years, there are reasons to believe that TXN can deliver decent returns to shareholders.”
Looking at analyst ratings on TXN shares, Considine wrote, “The Wall Street consensus rating is a mixed bag.” He continued, “ETrade calculates a consensus buy rating, but Seeking Alpha comes out with a hold for TXN.” However, regarding returns, he was still bullish on the company’s prospects, writing, “The consensus 12-month price targets from Seeking Alpha and ETrade are very close, however, indicating an expected total return of 18% over the next year. Even though expected growth is muted, the consensus view indicates solid potential gains from the current reduced share price.”
Considine put a spotlight on Texas Instruments’ reliable bottom-line results, stating, “TXN has grown earnings at a steady clip over the past 3 years, consistently beating analyst expectations. In the most recent earnings report on July 26th, for Q2 of 2022, quarterly EPS exceeded the consensus expected value by 15.7%. The rate of earnings growth has slowed over the past year, and the outlook is for 2023 earnings to fall below the 2022 results. The consensus expectation for EPS growth over the next 3 to 5 years is a modest 6.1% per year.” He said that the stock’s ongoing fundamental growth, alongside its recent sell-off, has resulted in an intriguing valuation being associated with shares.
Considine wrote, “With TXN’s price decline, the shares look reasonably valued relative to current and expected earnings. The forward and TTM P/E are 17.3 and 17.0, respectively, on the low end of TXN’s P/E range over the past 4+ years.”
Furthermore, he touched upon TXN’s history of translating bottom-line growth into dividend growth for shareholders. He wrote, “The trailing 3-, 5-, and 10-year dividend growth rates are 14.3%, 18.1%, and 21.1% per year, respectively. With expected EPS growth of 6.1% per year, maintaining anything close to historical dividend growth rates will push up the payout ratio (currently at 47.6%).” He also said, “The current payout ratio is somewhat below TXN’s 5-year averages, 57.2% (GAAP) and 54.6% (non-GAAP), so there is some room for an increase.”
Considine isn’t the only credible author who has written about Texas Instrument’s dividend yield and dividend growth recently. Jason Fieber, a Nobias 5-star rated author, recently published a report titled, “These 6 Dividend Stocks Just Boosted Their Payout, Again!” which included a breakdown of Texas Instruments’ most recent dividend raise.
Fieber said, “Texas Instruments just increased its dividend by 7.8%. They say everything is bigger in Texas. Well, Texas Instruments continues to hand out big dividend increases.” He continued, “Now, this particular increase wasn’t quite as impressive as some of the past increases from Texas Instruments, but we have to keep in mind that we’re in the middle of unprecedented global economic turmoil. The fact that the company still came through with a near-8% dividend increase speaks volumes about their commitment to shareholders.”
Regarding TXN’s dividend growth history, Fieber stated, “The technology company has now increased its dividend for 19 consecutive years. Texas Instruments has been so incredibly reliable with the dividend and the growth of it. The 10-year dividend growth rate is 21.5%, but there’s been a deceleration playing out in recent years. I wouldn’t continue to expect 20% annual dividend raises from Texas Instruments.” But, he added, “Even if Texas Instruments were only handing out 8% dividend increases per year, it’s hard to complain about that when you get a 3.1% starting yield.”
Fieber concluded his bullish report writing, “Texas Instruments has almost nothing to dislike. The dividend metrics are great, and the company also just announced a $15 billion buyback program – more than 10% of its entire market cap. Texas Instruments is about as shareholder friendly as it gets.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Jim Kelleher of Argus, a Nobias 4-star rated analyst, also recently published a recent note on TXN in response to the stock’s recent sell-off. This note was highlighted in a report at theflyonthewall.com which wrote that Kelleher said, “Texas Instruments shares offer "good value" at current levels as the stock trades at 16.6-times his expected 2022 GAAP earnings and 15.6-times his 2023 projections - below the five-year average P/E multiple of 21.9-times.”
The theflyonthewall report continued, “Kelleher adds that while semiconductor shortages continuing to plague the industry, Texas Instruments' role as a prime supplier has extended its competitive advantage over fabless companies dependent on busy merchant fabs, also citing its market strength and diversified customer base.” Kelleher rates Texas Instruments a “Buy” with a price target of $225.00/share.
Overall bias of Analyst and Blogger community:
Overall, 44% of recent articles published on TXN have expressed “Bearish” sentiment; however, the last 3 reports published by credible individuals (in a post-semiconductor sell-off world) have expressed “Bullish” bias. The average credible analyst price target currently being applied to TXN shares is $165.75.
After their recent dip, TXN shares trade for $152.70. Therefore, relative to the average credible analyst price target, TXN shares appear to offer price return upside of approximately 8.5%. And, when the stock’s current 3.23% dividend yield is factored into the equation, the total return potential for investors moving forward rises up above the 10% threshold.
Disclosure: Nicholas Ward is long TXN. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.