Shares of Texas Instruments are down slightly since the start of 2024. That’s partly because manufacturers stocked up on chips due to pandemic-related supply chain disruptions.
However, we expect orders will increase as customers use up their inventories. The company is also taking advantage of tax credits under the U.S. CHIPS and Science Act to build new plants. That will let it keep up with rising demand as more electronic devices connect to the “Internet of Things.”
Meanwhile, the stock trades at 25.7 times the company’s 2025 earnings forecast.
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TEXAS INSTRUMENTS INC. (Nasdaq symbol TXN; www.ti.com) makes analog computer chips, which convert touch, sound and pressure into electronic signals. It has over 100,000 customers worldwide, which cuts its reliance on specific markets or industries.
The company’s revenue fell 8.9%, from $15.78 billion in 2018 to $14.38 billion in 2019. That’s largely because customers ordered too many parts in the prior year. Despite the COVID-19 shutdowns, revenue recovered 0.5% to $14.46 billion in 2020, and rose a further 26.9% to $18.34 billion in 2021. Revenue then improved another 9.2% to $20.03 billion in 2022.
In 2019, the lower revenue cut Texas Instruments’ earnings by 10.1%, from $5.58 billion in 2018 to $5.02 billion. The company is an aggressive buyer of its own shares, which is why per-share earnings fell at a slower pace of 6.3%, from $5.59 to $5.24. Earnings then improved 11.5% to $5.60 billion ($5.97 a share) in 2020, and jumped 38.9% to $7.69 billion ($8.26 a share) in 2021. They then rose a further 12.6% to $8.75 billion ($9.40 a share) in 2022.
Dividend Stocks: Texas Instruments is capitalizing on the U.S. CHIPS Act for expansion
In the fourth quarter of 2023, revenue fell 12.6%, to $4.08 billion from $4.67 billion a year earlier on weaker sales to its industrial and automotive customers. Earnings fell 30.1%, to $1.37 billion, or $1.49 a share, from $1.96 billion, or $1.96, a year earlier. The company earmarks a high 11% of its sales to research, which should fuel its long-term growth.
The company is now building a new facility in Sherman, Texas, to house as many as four new chipmaking plants. In all, costs could reach $30 billion. The new plants will use 300-millimetre wafers to make chips, which cost 40% less than the 200-millimetre wafers of its competitors. That will increase its profit margins.
For all of 2024, Texas Instruments’ earnings will probably fall 27% to $5.16 a share. However, earnings could rebound to $6.66 a share in 2025, and the stock trades at 25.7 times that estimate. That’s an attractive multiple for this market leader considering it earmarks so much of its revenue for research.
With the November 2023 payment, Texas Instruments increased your quarterly dividend by 4.8%, to $1.30 a share from $1.24. The new annual rate of $5.20 yields 3.0%. The company’s TSI Dividend Sustainability Rating is Above Average.
The company has now increased the annual rate each year for the past 20 years. It also has $21.3 billion remaining under its stock buyback authorizations.
Recommendation in Wall Street Stock Forecaster: Texas Instruments Inc. is a buy.
