Texas Instruments (NASDAQ:TXN) shares look set for a down day, with the stock falling at the open after the leading analog chipmaker’s latest quarterly results failed to impress investors.
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That is despite the fact the quarter’s results were decidedly strong. Revenue climbed by 16.5% vs. the year-ago period, reaching $4.45 billion and beating the Street’s forecast by $130 million. At the other end of the scale, EPS of $1.41 outpaced analyst expectations by $0.08.
The revenue outlook was decent enough too. For Q3, the company guided for revenues of $4.63 billion at the mid-point (+4% sequentially, +11% YoY), above consensus at $4.59 billion. However, Q3 EPS is expected to land at $1.48, falling short of the consensus estimate of $1.51. Management acknowledged that tariff-driven pull-ins could partially mask the underlying cyclical recovery, resulting in a more cautious outlook. The company pointed out two key dynamics: first, industrial demand picked up sharply in early Q2 – rising nearly 20% year-over-year – as customers with lean inventories moved quickly to secure supply ahead of potential disruptions. Second, in China, similar tariff-related pull-in activity drove sequential growth of 19% and a YoY increase of 32%.
Rosenblatt analyst Kevin Garrigan puts the negative reaction down to “elevated expectations heading into the quarter and management’s shift in commentary from bullish to balanced.”
As noted above, TI is adopting a more cautious stance regrading Q3, guiding below typical seasonal trends. But on the broader cycle, while management noted that tariffs and geopolitical tensions are creating disruptions across global supply chains and limiting visibility, the cyclical recovery remains intact, supported by low customer inventory levels. Management highlighted that four out of five end markets are currently in an upswing, with Automotive being the lone exception. TI is also maintaining elevated inventory levels to be ready for a potential rebound in demand.
As for what to do with the shares, in time-honored fashion, Garrigan thinks investors should use the pullback to their advantage. “Net-net, we would be buyers of the stock as we believe TI is well positioned to navigate any scenario tariffs/geopolitics brings,” the analyst said. “We see TI returning to solid revenue growth as the cycle improves, with long-term margin expansion supported by its 300mm manufacturing footprint.”
Bottom line, Garrigan reiterated a Buy rating on TI shares, backed by a $245 price target. There’s potential upside of 27% from current levels. (To watch Garrigan’s track record, click here)
Looking at the ratings breakdown, the Buys and Holds are split equally here, showing 12 for each, and with an additional 1 Sell, the stock receives a Moderate Buy consensus view. The average target stands at $212.29, making room for 12-month returns of 10%. (See TXN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.