On Thursday, Deutsche Bank (ETR:DBKGn) reiterated a Hold rating on Texas Instruments (NASDAQ:TXN) with a steady price target of $200.00, as the stock trades near $197.51. According to InvestingPro data, the company appears overvalued at current levels, trading at a P/E ratio of 36.64x.
The firm anticipates that the company will likely post fourth-quarter results that align with or slightly surpass expectations, but may project a seasonal decline for the first quarter of 2025. Analysts from Deutsche Bank predict a typical initial quarter guidance with a 2-3% quarter-over-quarter decrease, which contrasts with their own estimate of a flat quarter-over-quarter performance.
Texas Instruments is expected to experience a varied pace of correction and recovery across its market segments, with seasonal trends influencing sectors like Personal Electronics, Communications Equipment, and Enterprise Systems. The company's revenue has declined 13.26% over the last twelve months, according to InvestingPro data, which shows 16+ additional insights about the company's performance. Cyclicality is anticipated to continue impacting Industrial and Automotive sectors, which together account for over 70% of the company's revenue. The recovery trajectory in these latter segments is of particular interest to investors.
The report also forecasts a gross margin decline of approximately 260 basis points to 57% in the fourth quarter of 2024, attributed to decreased revenue, lower utilization, and increased depreciation. A further marginal decrease is expected in the first quarter of 2025, with gross margin potentially reaching 56.4%, largely due to depreciation costs.
Deutsche Bank analysts also mentioned the potential gross margin benefit from the CHIPS Act, which could provide Texas Instruments with approximately $1.6 billion in direct funding. Details on the timing and extent of this funding are anticipated to be discussed during the company's Capital Management call scheduled for February 4, 2025.
Despite Texas Instruments being recognized as a top-tier Analog company with strong fundamentals, including a 21-year streak of dividend increases and excellent financial health metrics, Deutsche Bank suggests that the current stock valuation, approximately 27 times their fiscal year 2026 pro forma earnings per share estimate, has already factored in the potential positives.
As a result, the firm maintains its Hold rating on the stock. For a deeper understanding of TXN's valuation and growth prospects, investors can access comprehensive analysis through InvestingPro's detailed research reports, which cover over 1,400 US stocks.
In other recent news, Texas Instruments Inc. (TI) has been the subject of various developments. The company reported mixed Q3 2024 earnings, with a sequential revenue increase of 9% to $4.2 billion, despite an 8% year-over-year decline. TI's CFO, Rafael Lizardi, noted a gross profit of $2.5 billion and net income of $1.4 billion, equivalent to $1.47 per share. Over the past year, the company returned $5.2 billion to shareholders, including a 5% dividend increase.
China has launched an investigation into alleged unfair practices by U.S. chipmakers, including Texas Instruments. The probe was initiated in response to complaints from local industry participants, according to a statement from the Commerce Ministry. Meanwhile, Benchmark reiterated its Buy rating on shares of Texas Instruments, maintaining a steady price target.
Citi expressed a positive outlook on the U.S. semiconductor sector, suggesting that the recent downturn is nearing its end. The firm anticipates a 9% year-over-year increase in global semiconductor sales in 2025. Texas Instruments has also started production of gallium nitride (GaN)-based power semiconductors at its Aizu, Japan facility, aiming to internalize more than 95% of its GaN chip production by 2030. BofA Securities revised its price target for Texas Instruments, reducing it to $215 from $220 while maintaining a Neutral rating.
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