Texas Instruments (TXN) Analog & Embedded to Aid Q4 Earnings

Texas Instruments TXN or TI is scheduled to report fourth-quarter 2017 earnings on Jan 23 after the bell.

We expect the company to perform well driven by strength in several high-margin, high-growth areas of the analog and embedded processing markets. It continues to prudently invest its R&D dollars in these areas. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing exposure to volatile consumer/computing markets.

We observe that shares of Texas Instruments have gained 60% over the past 12 months, outperforming the industry’s 49% rally.

Expectations From Analog

TI’s analog business has been witnessing both sequential and year-over-year growth for the last four quarters. This was driven by strong performance in almost all the product lines. Last quarter, this segment generated $2.7 billion, up 12% sequentially and 16% from the year-ago quarter.

We expect this trend to continue in the to-be-reported quarter, given TI’s compelling product line and manufacturing efficiencies that include growing 300-millimeter Analog output. The Zacks Consensus Estimate for Analog segment revenues is currently pegged at $2.5 billion.

Expectations From Embedded Processing

This segment has also been growing sequentially and year over year for the last four quarters, driven by growth across all product lines. Last quarter, it generated $931 million, up 7% sequentially and 17% year over year.

This segment is also expected to do well in the to-be-reported quarter, as product lines remain strong. The Zacks Consensus Estimate for Analog segment revenues is currently pegged at $853 million.

Overall

The company has always executed well. It, along with chipmaker Intel INTC, is 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 when it is expanding. Management remains focused on increasing free cash flow per share and strengthening competitive advantages.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Texas Instruments has a Zacks Rank #2 and an Earnings ESP of +2.89%, which indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Texas Instruments Incorporated Price and EPS Surprise

 

Texas Instruments Incorporated Price and EPS Surprise | Texas Instruments Incorporated Quote

Other Stocks to Consider

Here are a couple of stocks that you may also want to consider as our model shows that these have the right combination of elements to post a positive earnings surprise.

Applied Materials, Inc. AMAT, with an Earnings ESP of +0.57% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corporation WDC with an Earnings ESP of +0.83% and a Zacks Rank #2.

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