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Texas Instruments Beats 3Q Estimates On Auto Rebound; Shares Rise

Texas Instruments surpassed analysts’ revenue and earnings estimates for the third quarter as the company experienced a rebound in the demand for its chips in the auto market. Shares rose 1.4% in the extended trading session on Tuesday.

The semiconductor company’s 3Q revenue grew 1.2% to $3.82 billion Y/Y and 18% sequentially. Texas Instruments’ (TXN) management cited “notable strength from the rebound of automotive demand and growing demand from personal electronics” as the reasons for the improvement in the top-line. EPS declined 3% Y/Y to $1.45. The company handily exceeded analysts’ forecast of EPS of $1.28 on revenue of $3.45 billion.    

The company makes analog and embedded processing chips for markets such as industrial, automotive, personal electronics, communications equipment and enterprise systems. Its revenue from the analog business grew 7% Y/Y in 3Q while embedded processing revenue declined 10%.

Coming to the 4Q20 guidance, Texas Instruments expects revenue in the range of $3.41 billion to $3.69 billion and EPS between $1.20 and $1.40 (vs revenue of $3.35 billion and EPS of $1.12 in 4Q19).

On the 3Q conference call, the company stated “while visibility for near-term demand has improved, we remain cautious, as the broader economic impact of the global pandemic could continue for several years. Our approach in an environment like this is to maintain high optionality with our operating plan in the short term, to continue critical investments in R&D and in new capabilities like those for TI.com, and finally to invest to ensure long-term manufacturing capacity, particularly for the 2022 to 2025 time frame.”

Following the results, Oppenheimer analyst Rick Schafer reiterated a Buy rating for Texas Instruments with a price target of $170. The analyst noted that unlike its peers, the company’s lead times have remained consistent and management reaffirmed plans to maintain elevated inventories (137 days) as strategic upside optionality.  

The analyst added “As global GDP [Gross Domestic Product]/PMI [Purchasing Managers’ Index] picks up, we see TXN positioned for upside.” (See TXN stock analysis on TipRanks)

The Street has a cautiously optimistic outlook for Texas Instruments. A Moderate Buy consensus for the stock is based on 10 Buys versus 10 Holds and 1 Sell. With shares advancing 17.5% year-to-date, the average analyst price target of $152.65 implies a modest upside potential of 1.2%.

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