On Monday, UBS maintained a Buy rating on shares of Texas Instruments (NASDAQ:TXN) and increased the price target to $250 from the previous $195. The firm's outlook is based on the expectation of an improving order environment in the broader analog sector, with a particularly strong September quarter anticipated for Texas Instruments.
The analyst from UBS predicts that Texas Instruments will provide more details on its capital expenditure (capex) plan, which is expected to be rigid through calendar year 2026 due to the CHIPS Act regulations and the completion of construction and pilot line in Sherman. Sti, the flexibility is projected to increase after this period.
Furthermore, Texas Instruments is anticipated to clarify its targets for free cash flow (FCF) per share, with the ~$9/share in 2026 suggested by Elliott in a recent letter being considered a conservative estimate.
The firm also foresees a more significant grant from the CHIPS Act for Texas Instruments than the ~$2 billion currently expected by most investors. Texas Instruments' competitive pricing strategy in China, where it can compete with local producers on cost, was also highlighted as a key advantage.
The raised stock price target to $250 is based on 23 times the normalized average 2025/2026 estimated FCF of $10.2 billion, which is a change from the prior target based on 26 times the $7.2 billion 2025 estimated FCF.
According to UBS, when accounting for the CHIPS Act capex, Texas Instruments is trading at 23/16 times the 2024/2025 estimated enterprise value to FCF multiples, which is significantly lower than its analog peers' 31/20 times.
In other recent news, Elliott Investment Management has revealed a substantial $2.5 billion stake in Texas Instruments, advocating for the company to implement a "dynamic capacity-management strategy" to significantly enhance its free cash flow.
This strategic move comes as Texas Instruments has committed to a capital expenditure of $5 billion annually through 2026, with expansion projects in Texas and Utah already underway. Analyst firms Wells Fargo (NYSE:WFC) and Deutsche Bank (ETR:DBKGn) maintained their Underweight and Hold ratings on Texas Instruments, respectively, despite this significant investment.
In related developments, Kevin Hern, Oklahoma's 1st congressional district representative, has been active in the stock market, making notable investments in Accenture (NYSE:ACN), Exxon Mobil (NYSE:XOM), and Texas Instruments. These investments were made through the Hern Family Revocable Trust's brokerage investment account and the Hern Family Foundation.
On another note, Analog Devices Inc (NASDAQ:ADI). has projected a higher third-quarter revenue, suggesting a recovery in the chip market. This optimistic forecast follows a similar positive projection from Texas Instruments, fueling expectations for a rise in demand for analog chips. These are the recent developments in the semiconductor industry, providing a snapshot of the current financial landscape and investment activity.
InvestingPro Insights
Reflecting on the optimism from UBS regarding Texas Instruments (NASDAQ:TXN), InvestingPro data and tips provide a deeper dive into the company's financial health and market performance. With a robust market capitalization of $181.8 billion and a P/E ratio sitting at 30.86, Texas Instruments demonstrates significant investor confidence.
The company's commitment to shareholder returns is evident through its consistent dividend growth, having raised its dividend for 20 consecutive years. Additionally, the dividend yield stands at a healthy 2.62%, with the next ex-date for the dividend set for May 7, 2024.
InvestingPro Tips highlight that Texas Instruments is a prominent player in the Semiconductors & Semiconductor Equipment industry, which aligns with UBS's positive outlook on the sector. Moreover, the company's low price volatility and strong return over the last three months, at 18.15%, suggest a stable investment opportunity.
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