Texas Instruments (TXN, Financial) is getting better due to its leaner business. The company looks solid after its recent results provided the company a much needed boost in terms of profitability. Texas Instruments has a lot of potential that will possibly help the company to increase its share in the market as it has improvised its product portfolio.
A strong product portfolio
The analog chip maker is counting heavily from the extended product line up it has in Analog and Embedded Processing product categories. The company anticipates strong growth in the automotive and industrial market, which continues to embrace new technologies and TXN has apt solutions for these emerging markets that will gain enough traction for the chip maker.
Moreover, Texas Instrument has various products that serve thousands of customers in the markets, from microwaves to military hardware with accelerated demand for its products across electronic industry. For example, one of its clients, Huawei Technologies is building its equipment using its chips for new mobile and smartphones network in emerging market like China. In addition, the company has experienced significant increase in the pace of orders from Huawei Technologies in the first quarter and is expected to continue in the current quarter reflects solid demand for its products across the industry.
Apart from this, Texas Instruments is focusing on expansion in analog chips, especially in semiconductors that convert physical actions, as these devices involve less costs than digital chips and doesn’t require most advanced production techniques.
Diversification initiatives
Texas Instruments has diversified its product portfolio with in-depth concentration on analog chips that will certainly help the company to gain enough market share in the category as it requires low capital requirements than that of legacy wireless products. This will definitely reduce its dependency on single market such as PCs, which are undergoing a turnaround for the company.
In addition the company is considered a barometer of the chip industry that makes components for variety of markets and its chips are being used in cars, appliances and in industry products, and have enough market opportunities that will certainly yield a good return for the investors in the coming months.
Financial focus
In the past 12 months, the company has returned more than $4 billion cash to its investors through a combination of dividends and stock repurchases programs. Texas Instruments has free cash flow of $3.1 billion and the company expects to operate it in the range of 25% to 30% of the revenue over time as it increased its free cash flow margins from 20%-25% to 25% to 30% in March 2014.
Though the company has total debt of $5.65 billion, it has been well modeled as the company received $1.14 billion of proceeds from exercises it has in practice for equity compensation. Therefore, the recent practice of providing dividends to its shareholders, stock repurchase and maintaining enough cash flow is well aligned with the Debt/Equity model it has in place, leaving no worries for investors that could certainly look for buying the stock in short as well as in the long term. The total cash returned to shareholders in the past 12 months was 38% higher than last year; this will certainly bring in new investors who are looking for strong dividend yield from the company.
Conclusion
Texas Instrument is certainly a good pick and investors can definitely consider buying it based on a few fundamental elements such as significant revenue growth, strong stock price performance that grew approximately 34.6% during the last one year, and handsome growth of 34.5% in net income that has outpaced that of the S&P 500 Semiconductors & Semiconductor Equipment industry average.
The company trades at the trailing P/E of 22.49 and forward P/E of 17.38 and provides impressive 21.2% return on equity. The analysts have estimated CAGR of 10.53% for the next five years with the current quarter robust growth of 21.40 %. Also the company is expected to grow around 21.50% at the end of 2014.
