Texas Instruments (TXN) Slips 4% on Paused Buybacks, But Beat-and-Raise Fuels Analysts' Bullishness

Texas Instruments (NYSE: TXN) reported better-than-expected results and guidance. Still, shares of the company are down 4.4% Wednesday after the company decided to scale down buybacks.

TXN said it earned $1.87 per share to beat the $1.56 expected from market analysts, and higher by over 50% compared to a year-ago period. The company posted revenues of $4.29 billion for the quarter to end March, again exceeding the Street consensus by 8%. A year ago, the company reported revenues of $3.33 billion.

For the Q2 guidance, TXN said it expects revenue in the range of $4.13 billion to $4.47 billion and earnings per share (EPS) between $1.68 and $1.92.

“We continue to expect our 2021 annual operating tax rate to be about 14%,” the company said in a statement.

It is likely that the TXN stock slipped on the slowing pace of buybacks, according to Jefferies analyst Mark Lipacis.

“TXN repurchased $100m of stock in 1Q21 and $130m over the past 9 months. TXN reiterated its objective to return all free cash flow to the owners of the company over the long term, but noted "...that doesn't necessarily mean every quarter, certainly not every quarter, maybe not even every year". Assuming TXN maintains a similar pace, we estimate it would end 2021 with $3.1bn of Net Cash, or 17% of sales, which would be the highest level since 2010,” the analyst wrote in a note.

Lipacis, who raised the price target to $220.00 per share from $206.00 per share on Buy-rated TXN, notes several potential reasons that may explain why TXN paused buybacks:

1) Keeping cash high during the current CapEx cycle,

2) M&A, if not now, then perhaps during the eventual inventory correction,

3) Saving for higher dividend,

4) Saving to buy back stock during the next downturn at a better price,

5) Saving to buy a slug of equipment a la Qimonda in 2009 or PowerChip in 2013.

Susquehanna analyst Christopher Rolland joined Lipacis in raising the PT to $220.00 per share, in this case from $200.00 per share.

“We continue to recognize TXN as the large-cap analog to own, with strong competitive advantages provided to it by manufacturing scale, vertical integration, and catalog breadth,” the analyst writes in a note.

He also shares a few thoughts on TXN going forward.

“First, we think this guidance will likely prove conservative (our channel checks already point to strength in April). Second, we believe this short-term data point fails to illuminate the long-term progress TI is making in their customer-centric business model. Today, TI holds a distinct advantage over most in the industry... available capacity. And while utilization has increased over the past year, we believe TI holds a (somewhat) comfortable cushion today, with more capacity additions coming in upcoming quarters,” he concludes.

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