About Texas Instruments
When we think of Texas Instruments (TI), a few things instantly come to mind.
First of all, we’ve written a stock analysis article on another prominent, important company in the semiconductor industry before.
Secondly, we think of calculators and lastly, we think of the company’s name in its most literal sense and thus a bunch of cool Texan cats playing anything from the guitar, the violin, the piano and, well, you get the point.
All kidding aside, Texas Instruments is an absolute behemoth in the semiconductor (many commonly coin it the “chip” sector) industry and while the company is quite famous for its generic and specialized calculators, the company just does so much more than the eye initially sees.
Headquartered in Dallas, Texas (who would’ve thought), Texas Instruments puts together and sells (putting it in the most simple sense) semiconductors to many across the globe, as there are many practical uses for the semiconductors it designs, manufactures and sells such as its various applications in the automotive, industrial, personal electronics, communications equipment sectors and many other venues through Texas Instruments’ semiconductors get used and frankly are required for the world we live in today, as chips become more and more important in our everyday lives.
Take a few simple examples.
You know that smartphone of yours or that tablet or computer you take everywhere you go?
Each of those devices essentially needs semiconductors in order to operate to the consumer’s standards, as semiconductors themselves are essential in that they are the essence through which electronics and other devices process, receive and store data and information.
Sort of a big deal in today’s world and Texas Instruments is just here for the fun.
All in all, we consider major operators in the semiconductor industry to be well insulated from general recessionary pressures given that these companies supply among the most essential products in society today, however, make no mistake about it, the looming chip shortage has remained a dark cloud over the industry as a whole today, causing share prices of semiconductor companies’ stocks to fluctuate and still endure some prolonged prevailing volatility.
Some of Texas Instruments’ peers include the likes of onsemi, Intel, NXP Semiconductors and troves of others working day and night trying to relinquish TI of its market share (in terms of revenue) of around 3.1%, which may not seem like a lot, however, when you consider the size and scale of the industry as a whole, it is a lot.
Numbers, this is your cue.
Texas Instruments’ stock financials
Trading at a share price of around $170 with a market capitalization of $154.84 billion, a price-to-earnings (P/E) ratio of 19.33 and an annually dished out dividend to its shareholders of $4.96, Texas Instruments is off to a running start.
Namely, its dividend is considerable and a point of attraction for long-term oriented investors and its prevailing price-to-earnings ratio suggests that its stock is trading at a hair below that of the fair value benchmark (which is commonly held to be a price-to-earnings ratio of 20), implying that one could get in on this company’s stock (NASDAQ: TXN) at a relative discount, albeit not a massive one.
In looking a little more in depth with this company, Texas Instruments’ executives are in charge of managing and properly deploying approximately $27.2 billion in terms of total assets along with around $12.6 billion in terms of total liabilities.
We are immensely impressed by the overall state of this company’s balance sheet, as its total assets outweigh the amount of its total liabilities by a considerable margin and it is evidently well prepared for the deepening of the current recession as well as in good standing to pursue a few major, necessary acquisitions in the short and long runs.
On the revenue side of things (specifically referencing the company’s income statement), Texas Instruments’ total annual revenues have had their seasons of being both consistent and growing, which is also fantastic to see.
For instance, the company’s total annual revenues spanned between $14 billion and $15 billion between 2018 and 2020 (according to the figures displayed on TD Ameritrade’s platform) and subsequently experienced a rise to approximately $18.3 billion in 2021 to its latest reported figure (again, as displayed on TD Ameritrade’s platform) of just north of $20 billion (2022).
Given the exponential rate at which semiconductors and their related equipment and capabilities are increasing in demand, we take kindly to this recent revenue increase and also have the frame of mind to think it will continue to rise or at least not soften anytime soon, perhaps remaining at or above $20 billion over the next five years.
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Demand is a major tailwind to be considered for Texas Instruments and its competitors.
Sidestepping over to the company’s cash flow statement, net income generation and total cash from operations production haven’t been an issue in the slightest for TI.
For example, the company’s net income has remained positive since 2018 (we generally prefer referencing the last five years for all companies we analyze) and risen year-over-year (YOY) between 2020 and 2022, to its latest reported figure of $8.7 billion, and its total cash from its operations have found themselves in that area code as well, standing tall at around $8.7 billion during the same year.
This being the case, Texas Instruments must have some pretty healthy profit margins.
Texas Instruments’ stock fundamentals
Speaking of this company’s profit margins, they certainly did not disappoint.
Specifically, according to the figures displayed on TD Ameritrade’s platform, Texas Instruments’ trailing twelve month (TTM) net profit margin towers over the industry’s average at 42.33% to the industry’s respective average of 20.19%.
In a sector as competitive as semiconductors while having a TTM net profit margin more than double of that of the industry’s average is extraordinarily impressive and tells us that Texas Instruments is doing something very, very right on this front.
And also that, if done right and in the right operating realm, operating in the chip space can make for a very lucrative business.
As it relates to the company’s TTM returns on assets and investments and how they match up with the average of its peers, they don’t.
Texas Instruments’ put the industry’s averages to shame in these fields too.
For example, TD Ameritrade’s platform has TI’s TTM return on investment listed as 33.65% to the industry’s displayed average of 15.51%.
It’s clear as day that this company is and has been filled with disciplined, strategic capital allocators.
Once again, Texas Instruments has found a way to trump the industry’s average(s) in a more than meaningful, tangible fashion.
Should you buy Texas Instruments stock?
This is one of the few instances in which we don’t have anything all too negative to say about the company in question.
Of course, as it operates in the currently volatile chip sector Texas Instruments and its counterparts aren’t likely to be shielded from the share price fluctuations that come with this territory, however, demand is demand is demand and given the current financial health of this company beaming through its fortressed balance sheet, growing total annual revenues, strong cash flows and TTM net profit margin and returns on assets and investment(s), this company doesn’t seem to be a bad play to make for those interested in dipping their beaks in the semiconductor sector.
For better or for worse, we think this company has a lot of internal and external tailwinds and accounting for the fact that its shares are trading at just under fair value (according to its current P/E ratio) and the continued elevated demand it is likely to receive for the years to come, we give its stock (NASDAQ: TXN) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.