Texas Instruments Inc. – Good results but a cloudy outlook
Here's my take on the Texas Instruments Q1 earnings report + an outlook and thesis update.
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Introduction
Analog semiconductor leader Texas Instruments released its highly anticipated Q1 earnings last week and impressed Wall Street. The company’s results showed that the analog industry has likely bottomed and that demand across all end-markets is improving, which is precisely what investors needed to see to increase confidence.
TXN beat consensus estimates and issued better-than-expected guidance, even as the company faces its fair share of headwinds and uncertainty. In response, TXN shares gained 6.5% in the following trading session and ended the week 11% higher.
Back in January, right before we saw the broader market sell-off that took TXN right with it, I rated shares an unusual Sell. Since then, shares are down 12%, even after last week’s strong performance, and are starting to look more attractive, dropping from a 34x P/E to 29x today.
However, while the semiconductor industry seems to have bottomed, demand is improving, and inventory is finally healthy, I wouldn’t necessarily say the underlying situation for TXN has improved quite as much. Heated global uncertainty from tariffs, an ongoing trade war, and a subsequent economic slowdown weigh on its outlook and lead to considerable near-term uncertainty.
Will improving demand and healthy inventories be able to offset the destruction caused by tariffs and an economic growth slowdown? Q2 guidance suggests it will, but the medium-term outlook seems uncertain.
To get a better idea of medium-term expectations, let’s delve a bit deeper into the Q1 results, commentary, and guidance. I will update my projections and investment thesis accordingly.
Is now the right time to buy, or does the sell rating still stand? Let’s find out!
