Texas Instruments' Diverse Auto And Industrial-Focused Portfolio Poised To Gain From CHIPS Funding, Analyst Says

• Oppenheimer analyst Rick Schafer reiterated Outperform on Texas Instruments Incorporated TXN with a $185 price target.


• TXN reports earnings on Jan. 24. 


• Industrial (41%) was flat Q/Q in the third quarter. Management highlighted signs of a broad slowdown as PMI trends turned negative. The segment would likely post a decline Q/Q in the fourth quarter.


• The analyst found medical, aero and defense relatively insulated.


• Auto (21%) held up well in the third quarter, growing 10% Q/Q. The segment would likely grow again in the fourth quarter as supply constraints eased further, aided by xEV/ADAS trends.


• Personal Electronics (24%) was down 15% Q/Q in the third quarter and likely to decline again in the fourth quarter. The analyst saw PC and handset verticals down through 2023. 


• Comm Equipment (6%) and Enterprise Systems would likely decline in the fourth quarter. 


• Comm Equipment appeared poised for recovery as 5G RAN capex spend recovers.


• The analyst saw an in-line set up to fourth quarter consensus sales/EPS of $4.6 billion/$2.00, but downside risk to Street's first quarter of $4.4 billion/$1.87 as the cyclical correction progresses. 


• Customer bookings were decelerating for most as cancellations pick up. 


• Extended lead time orders were most impacted. 


• Early last summer, demand weakness in personal electronics spread to broader markets, including industrial which started the previous quarter. 


• The analyst characterized this as the classic "first cut," historically followed by roughly three more. 


• The analyst saw Texas Instruments among the best positioned to benefit from U.S. CHIPS funding materially. 


• Launched in the second half of 2022, RFAB2 added $5 billion in capacity. LFAB geared up for an additional $4 billion capacity to be ready in the first half of 2023. 


• The analyst liked Texas Instruments' diverse auto and industrial-focused portfolio, with the CHIPS, call option serving as wild cards to boost FCF return.

 

TXN Price Action: Texas Instruments shares traded lower by 1.17% at $170.71 Thursday at publication.