Pru on TXN
On March 8 analyst Mark Lipacis of Prudential Financial reiterated his "overweight" rating on Texas Instruments (TXN.NYS) and raised the target price from $29 to $30:
From his report:
>> Why We Rate TXN an OVERWEIGHT:
• TXN provided its mid-quarter update, narrowing its revenue and EPS guidance ranges toward the low end due primarily to DLP softness attributed to customer inventories. The company believes other segments are tracking in line and distributor inventories that had been the cause of weakness in standard and commodity products should be near target levels by quarter end. The company reiterated its optimism for its 3G wireless business, citing a doubling or tripling of the overall market and its expectations of share gains.
• We believe fundamentals in the semiconductor industry will bottom during the first half of 2005 and the sector will enter the recovery phase of the cycle. As a result, we would favor companies that are integrated (have their own manufacturing facilities) and are associated with good product and market cycles.
• We think TXN will benefit from a strong product cycle in wireless handsets, digital light processing (DLP) and its exposure to consumer end markets.
VALUATION: The valuation methodology used to determine our $30 price target is based on 22 times our 2006 GAAP EPS estimate of $1.34. This is consistent with an approximate 20%-25% premium to the company's prebubble median P/E multiple, which we believe is appropriate given the current interest rate environment.
RISKS: TXN derives over 20% of its revenues from the handset market. Furthermore Nokia has consistently been a 10%+ customer. TI shares are trading at a premium to its average historical valuation metrics. We argue that this premium is justified due to the low interest rate environment and the timing of the semiconductor cycle. However, there is a risk that multiples could contract significantly if interest rates rise above current expectations, or the semiconductor sector's fundamentals deteriorate. <<
- Eric -
