Texas Instruments initiated at Underweight on revenue concerns: Wells Fargo
Seeking Alpha 16/05/2024 21:51

Texas Instruments (NASDAQ:TXN) received an Underweight rating due to concerns of the semiconductor company hitting its revenue targets as Wells Fargo initiated coverage.

"Without a clear path to $30B in FY26 revenue, or even $45B in revenue by FY30, TXN may experience a free cash flow deficiency that makes it difficult to maintain the same capital return as in years past (absent substantial CHIPS Act funding), a lower ROIC and lower structural gross margins because of the added fixed depreciation and factory underutilization," said Wells Fargo equity analysts Gary Mobley and Travis Poulin, in a Thursday note.

The bank also set a price target of $150 on the stock, which is well below its current price of $195.

"With ~75% of sales tied to Auto & Industrial, investors have been attracted to TXN as a way to play a recovery in the two end markets emerging last from the depths of the chip cycle," Mobley said. "Our view, however, is that TXN may not emerge in the next 'up-cycle' the same way."

Wells Fargo also identifies risks in Texas Instruments' capital expenditure plan, as the company plans on investing $20B from 2023 to 2026, which totals about 30% of near-term sales.

"Even with CHIPS Act subsidies, this higher capital intensity should result in a much higher annual fixed depreciation expense, without high enough utilization to fully exploit the cost benefits of moving to 300mm production," Mobley added. "This cap ex intensity also may require TXN to take on additional debt to help bridge the current cycle & to support dividends & share buybacks."

Texas Instruments is rated a Hold by Seeking Alpha and Wall Street analysts. It is also rated a Hold by Seeking Alpha's Quant system, which routinely beats the market.

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