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Is Texas Instruments (TXN) Poised to Beat on Q4 Earnings?

Texas Instruments Inc. TXN or TI, a global semiconductor company and one of the world's leading designers and suppliers of digital signal processors and analog integrated circuits, is expected to beat expectations when it reports fourth-quarter 2016 results on Jan 24.

Over the last one year, the stock has underperformed the Zacks Semiconductor General industry. It has gained 48.26% compared to the industry’s gain of 49.02%.

Why a Likely Positive Surprise?

Our proven model shows that TI is likely to beat estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Texas Instruments has the right combination of two key components.

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Zacks ESP: The company currently has an Earnings ESP of +1.24%. This is because the Most Accurate estimate stands at 82 cents, while the Zacks Consensus Estimate is pegged at 81 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Texas Instruments currently carries a Zacks Rank #3, which when combined with an ESP of +1.24% makes us reasonably confident of a positive surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Texas Instruments Inc. Price and EPS Surprise

Texas Instruments Inc. Price and EPS Surprise | Texas Instruments Inc. Quote

Factors at Play

Texas Instruments is currently riding high on strengthening auto and industrial markets. The communications and enterprise market is also improving. Personal electronics and other markets remain weak but TI has done well to tackle the challenges.

Internally, the company has always executed rather well. It, along with chipmaker Intel (INTC) remains one of the few semiconductor companies that depend on internal capacity for manufacturing the bulk of its devices. Since the company usually builds out capacity well ahead of demand, it is able to make opportunistic purchases. As a result, it is able to contain capex at up to 4% of sales even while on an expansion plan.

Overall, we remain optimistic about TI’s compelling product line, the differentiation in its business and lower-cost 300mm Analog output that should drive earnings. We note that channel inventories remain very low, meaning that demand is likely to remain strong.

Texas Instruments also continues to prudently invest its R&D dollars into several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.

According to TI’s guidance for the fourth quarter, revenues are expected between $3.17 billion and $3.43 billion (down 10.8% sequentially at the mid-point). Earnings for the quarter are expected to be 76 to 86 cents. Capex target remains at 4% of revenues.

Stocks to Consider

Seagate Technology plc STX, with an Earnings ESP of +1.87% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Corning Incorporated GLW, with an Earnings ESP of +6.98% and a Zacks Rank #2.

Microsoft Corporation MSFT, with an Earnings ESP of +1.28% and Zacks Rank #2.

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Seagate Technology PLC (STX): Free Stock Analysis Report
 
Microsoft Corp. (MSFT): Free Stock Analysis Report
 
Corning Inc. (GLW): Free Stock Analysis Report
 
Texas Instruments Inc. (TXN): Free Stock Analysis Report
 
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