UBS Lowers Texas Instruments Price Target to $360

UBS analyst Timothy Arcuri lowered the price target on Texas Instruments (NASDAQ: TXN) to $360 (from $380) while maintaining a Buy rating.

“TXN reported revenue near the higher end and guided flat – consistent with some of the more optimistic investor expectations into the call, but overall nicely above.

Gross margin was the bigger highlight here at ~190bps/260bps above UBSe/Street and guidance implying that margins move up slightly again.

Given the huge investment cycle over the past several years, we look at margins on a cash basis and TXN is now dropping through ~90% Y/Y with cash margins now essentially at an all-time high even before pricing tailwinds really start to kick in.

Consistent with our analog market update, customers across the board are worrying more about supply, but this is particularly true in autos where TXN’s business strengthened through the Q and grew ~10% Q/Q / ~15% Y/Y, led by a heavy EV mix in China.

Looking forward, TXN’s actions around capex – spending ~$900-1B in CQ4 or maybe more if it can get back-end equipment fast enough – seems to portend continued strength in C2027 as TXN would not be rushing to spend this $ unless it saw continued momentum across industrial, data center, and autos into next year.

We hear some investors increasingly citing a peak in Y/Y revenue and worrying about TXN as a result.

It is true that you can’t get much better than the ~37% Y/Y growth implied by the guidance (~31% ex-data center) and it could put some pressure on the multiple, but NTM FCF should still push the stock higher (Figure 1Stock Perfomance vs.Rnue Y/Growth &EV/NTM FC).

Net, we raise C2027E and C2028E EPS/FCF/share slightly to ~$12.70/~$14.30 and ~$15.21/ ~$16.14, respectively.

But in recognition of the market potentially paying a lower multiple as Y/Y growth decelerates, we are using ~23x applied to our C2028E FCF/share.

Our PT comes down slightly from $380 to $360 but we maintain our Buy on a combination of analog share gains and margin leverage during an upturn that we think still has legs.”

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