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Texas Instruments (TXN) Q1 Earnings: Is a Surprise in Store?

Zacks

Texas Instruments Inc. TXN or TI, a global semiconductor company and one of the world's leading designers and suppliers of digital signal processors and analog integrated circuits, is slated to report first-quarter 2017 results on Apr 25.

The company has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult. This is because, per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.

Texas Instruments’ surprise history has been quite impressive as the company beat estimates in each of the last four quarters with an average positive surprise of 7.09%. In the last one year, the stock outperformed the Zacks Semiconductor General industry. It gained 37% compared with the industry’s gain of 34%.


Texas Instruments Incorporated Price and EPS Surprise

Let’s take a look at the company’s performance in the last reported quarter.

Fourth Quarter Earnings and Revenues Grew Y/Y

In fourth-quarter 2016, Texas Instruments’ reported revenues grew 7.1% year over year. Pro forma net income was up 25.2% over the same time frame.

The automotive market was strong with growth spread across all five sectors inside this market. The company has also seen broad-based improvement in the industrial market. Communications equipment and enterprise systems stayed even but personal electronics was slightly down. The Other segment saw a decline.

The analog and embedded processing applications business maintained strong growth.

Factors at Play This Quarter

Internal Execution Remains its Strength

Internally, the company has always executed rather well. It, along with chipmaker Intel INTC remains 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 while on an expansion plan.

Investments in High Margin Areas

Texas Instruments continues to prudently invest its R&D dollars into several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.

Auto and Industrial Markets Strong

There are indications of strengthening auto and industrial markets, which are helping the company. The communications and enterprise systems market is stable. The personal electronics markets remain weak.

To Conclude

We remain optimistic about TI’s compelling product line, the differentiation in its business and lower-cost 300mm Analog output. We note that channel inventories remain very low, meaning that demand is likely to remain strong.

Stocks to Consider

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

Seagate Technology plc STX, with an Earnings ESP of +3.77%, and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Equifax Inc. EFX, with an Earnings ESP of +0.71% and a Zacks Rank #3.

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