Is Trending Stock Texas Instruments Incorporated (TXN) a buy it now?

Texas Instruments (TXN) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this chipmaker have returned +0.4%, compared to the +4.7% change in the Zacks S&P 500 composite. During this period, the industry Zacks Semiconductor – General, which includes Texas Instruments, lost 1.7%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Texas Instruments is expected to post earnings of $2.37 per share for the current quarter, representing a year-over-year change of +14.5%. Over the past 30 days, the Zacks consensus estimate has changed by +8.5%.

For the current year, the consensus earnings estimate of $9.35 indicates a change of +13.2% from the prior year. Over the last 30 days, this estimate has changed by +7.4%.

For the next fiscal year, the consensus earnings estimate of $8.83 indicates a change of -5.6% from what Texas Instruments is expected to report a year ago. Over the past month, the estimate has changed by +3.1%.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Texas Instruments is ranked Zacks Rank #2 (Buy).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Revenue Growth Forecasts

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

In the case of Texas Instruments, the consensus sales estimate of $5.11 billion for the current quarter indicates a year-over-year change of +10.2%. Estimates of $20.08 billion and $19.82 billion for the current and next fiscal year indicate variations of +9.4% and -1.3%, respectively.

Latest reported results and history of surprises

Texas Instruments reported revenue of $5.21 billion in the last quarter, representing a year-over-year change of +13.8%. EPS of $2.45 for the same period versus $2.05 a year ago.

Compared to the Zacks consensus estimate of $4.53 billion, reported revenue is a surprise +15.06%. Surprise EPS was +18.36%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly priced, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Texas Instruments is rated C on this front, indicating that it trades at par with its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Texas Instruments. However, its Zacks No. 2 ranking suggests it could outperform the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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