Should buying Texas Instruments Shares be considered post their earnings release?
In the wake of Texas Instruments (TI) shaking up the markets with its latest earnings report, an intriguing conundrum unfolds for long-term shareholders. The reason? The subdued future expectations led to an inevitable dip in its stock price, sparking a debate: is this merely a temporary hiccup, or a sign of looming turbulence?
It's crucial to note that TI belongs to the overlooked realm of semiconductor stocks. Far from the spotlight-grabbing technology produced by competitors like Nvidia or Advanced Micro Devices, its analog and embedded chips are nonetheless indispensable to the industry. By deciphering analog signals into digital form, TI's innovation plays an instrumental role in enabling advanced technologies — including the soul of today's tech wonder, artificial intelligence.
With an astounding 80,000 products catering to over 100,000 customers, TI dominates primarily industrial and automotive sectors. However, its chips also find a home in diverse arenas, such as enterprise systems, communications equipment, and personal electronics.
TI is renowned for its unparalleled historical achievements under the tenure of former CEO Rich Templeton, who transformed the company into an enviable dividend titan. Between 2004 and 2023, TI's dividend grew at an exponential compound annual rate of 24%. Under its current CEO, Haviv Ilan, dividend increases have been more measured, yet the 5% growth rate last year translates to a generous 2.9% dividend yield — well surpassing the S&P 500 average of 1.2%. Moreover, its extraordinary 21-year streak of annual dividend hikes makes it an exceptional choice for income investors seeking reliable dividends.
Another unique facet of TI is its self-sufficient manufacturing capabilities; it operates 15 global fabs with plans to expand in Sherman, Texas. Under present circumstances, this can be a game-changer for the company, as it navigates an industry-wide slowdown.
Let's dive into the financials. In Q4 2024, TI reported revenue of just over $4 billion, marginally below year-ago levels, but nonetheless beating its Q3 outlook of $4 billion. The revenue figure of $15.9 billion for 2024 represents a 10.6% decline compared to 2023. Analog revenue increased by 2%, but sluggish embedded revenue performance dragged down the overall results, as it dropped by a hefty 18%. The cost of revenue too nudged up slightly, leading to a 26% year-on-year decline in net income to $4.8 billion.
Management predicts a first-quarter 2025 revenue of $3.9 billion at the midpoint, a figure that still lags behind Q1 2023 revenue of $4.4 billion, indicating a slow recovery. Emphasizing this idea, TI's stock experienced a modest 9% growth over the previous year, a figure that underperforms the S&P 500's annual returns of the same period. Furthermore, the TI stock stands at a P/E ratio of 36, a level reminiscent of its multi-year highs, making many investors pause when considering the investment value against the company's tepid financial performance.
To summarize, under the prevailing market conditions, TI stock may not be the most lucrative investment opportunity. While its technology remains a cornerstone of today's groundbreaking innovations, TI is still grappling with the challenges of an industry recession. Moreover, the high P/E ratio hints that investors may look twice before valuing the stock in this tumultuous business climate. Yet, none of these hurdles pose an insurmountable threat to TI's long-term growth, making it an exciting opportunity for potential investors when or if the P/E ratio dips below 25.
Given TI's strong financial performance and history of dividend increases, some investors might see this as an opportunity for investing in its stock, particularly if the P/E ratio decreases below 25. Furthermore, TI's reinvestment in manufacturing capabilities could provide a competitive edge in the industry, making it an attractive option for those who are looking to allocate money in finance and investing.
