Texas Instruments Reports Strong Q3 Results Amid Analyst Reservations

Shares of Texas Instruments Inc (TXN) experienced a notable spike in early trading on Wednesday after the company announced its financial results for the third quarter. This announcement comes during an active earnings season that has captured investors' attention.

Analysts' Reactions

Following the results, various analysts shared their insights:

• Bank of America Securities' analyst Vivek Arya maintained a Neutral rating on the stock but reduced the price target from $220 to $215.
• JPMorgan's Harlan Sur reiterated an Overweight rating, setting a price target of $230.
• Benchmark analyst Cody Acree confirmed a Buy rating with a price target also at $230.
• Rosenblatt Securities' Hans Mosesmann upheld a Buy rating and set a higher target price of $250.

From BofA Securities, Arya commented, "We don’t yet see the lift-off in TXN sales growth." He noted that increasing depreciation could pose challenges for the company's gross margins in 2025, and he believes this issue isn't fully reflected in the current consensus estimates.

Guidance and Market Response

Texas Instruments provided guidance for the fourth quarter, describing it as "sluggish." Despite this, the stock saw an uptick in after-hours trading, driven by investor hopes for an end to the ongoing inventory correction. Arya mentioned, "On the positive side, TXN continues to build a comprehensive manufacturing footprint that could provide low-cost capacity in the next upcycle."

JPMorgan's Sur pointed out that Texas Instruments exceeded expectations regarding revenues, margins, and earnings for the third quarter, which reflects gradually improving cyclical trends. He noted that all regions showed growth in comparison to the previous quarter, with the exception of the Europe, Middle East, and Africa (EMEA) region.

However, management projected a 7% sequential decline in sales for the next quarter, which fell short of consensus expectations. Sur remarked that the company’s outlook indicates improving cyclical trends, though the pace remains slow, particularly due to weaker demand in industrial and automotive markets.

Investor Sentiment and Future Outlook

Benchmark's Acree agreed that while Texas Instruments showed stronger-than-expected results in the third quarter, the guidance for the fourth quarter was less favorable than anticipated. Still, investors reacted positively, as many were expecting an even duller forecast due to disappointing news in the automotive sector.

Acree also highlighted that elevated inventory levels could enable the company to compete more effectively for sockets that it had to forgo during the COVID-related supply constraints. This advancement is expected to sustain momentum within its non-automotive and industrial sectors, as Texas Instruments leverages its supply capabilities when its broader markets begin to rebound next year.

Rosenblatt Securities noted that Texas Instruments projected fourth-quarter revenues between $3.7 billion and $4 billion, which misses the midpoint consensus of $4.1 billion. The estimated earnings per share of $1.18 at the midpoint also fell short of the consensus estimate of $1.36.

Investors are observing a recovery in the company’s non-strategic areas such as personal electronics and communications, which experienced substantial sequential growth in the third quarter. This recovery is being interpreted as a sign that the industrial and automotive segments may start to recover in the first half of 2025.

Mosesmann added, "To support analog sales growth, firms need to invest in new equipment rather than reusing existing machines, and we do not foresee the industry keeping pace with the approximately six 300mm fabs that TI's roadmap outlines into the 2030s."

As a result of the earnings announcement and analysts' feedback, shares of Texas Instruments rose by 3.46%, reaching $200.69 at the time of reporting.

Texas, Instruments, Earnings