Why Is Texas Instruments (TXN) Up 3.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Texas Instruments (TXN). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Texas Instruments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Texas Instruments Beats on Q3 Earnings

Texas Instruments reported third-quarter 2021 earnings of $2.07 per share, which surpassed the Zacks Consensus Estimate by 0.5%. The bottom line also came within management’s guidance of $1.87-$2.13 per share.

The figure increased 43% year over year and 0.9% sequentially.

The company reported revenues of $4.64 billion, which improved 22% from the year-ago quarter and 1.4% from the prior quarter. Further, the top line came within the management’s guidance of $4.40-$4.76 billion.

Top-line growth was driven by a strong performance delivered by the Analog and Embedded Processing segments. Growing momentum across personal electronics, automotive and industrial end-markets, owing to solid demand environment, contributed well.

However, softness in the communication equipment market was an overhang in the reported quarter.

Notably, revenues missed the Zacks Consensus Estimate of $4.69 billion.

Nevertheless, the company’s efficient manufacturing strategies and continuous returns to shareholders are likely to instill investors’ optimism in the stock. Further, its substantial investments in growth avenues and competitive advantages are the tailwinds.

The uptrend in personal electronics is likely to benefit the company in the days ahead, owing to the rising demand for electronic gadgets due to remote-working and entertainment amid the pandemic.

End-Market in Detail

Revenues in the industrial market grew 40% from the year-ago quarter, owing to a solid momentum across most sectors.

Strong demand for mobile phones, tablets, notebooks and PCs led to year-over-year low-double-digit growth in revenues from the personal electronics market in the reported quarter.

The company’s revenues generated from the automotive market grew more than 20% from the year-ago quarter. The continuous recovery in the automotive space remained a tailwind.

Meanwhile, revenues in the communications equipment market declined year over year in the upper teens. Enterprise systems’ revenues witnessed year-over-year growth.

Segments in Detail

Analog: The company generated $3.55 billion from the segment (76.4% of total revenues), which increased 24% from the year-ago quarter.

Embedded Processing: The segment generated $738 million in revenues (15.9% of total revenues), up 13% year over year.

Other: Revenues in the segment were $357 million (7.7% of total revenues). The figure was up 19% from the prior-year quarter.

Operating Details

Texas Instruments’ gross margin of 67.9% expanded 360 basis points (bps) from the year-ago quarter.

As a percentage of revenues, selling, general and administrative expenses contracted 180 bps year over year to $412 million in the reported quarter.

Research and development expenses of $388 million contracted 170 bps from the year-ago quarter as a percentage of revenues.

The operating margin was 49.6%, which expanded 750 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2021, the cash and short-term investment balance was $9.8 billion, which increased from $7.4 billion as of Jun 30, 2021.

At the end of the reported quarter, the company had long-term debt of $7.2 billion, up from $5.7 billion in the prior quarter.

Current debt was $500 million in the third quarter compared with $499 million in the second quarter.

The company generated $2.4 billion of cash from operations, up from $2.1 billion in the previous quarter.

Capex was $486 million in the reported quarter. Further, free cash flow stood at $1.9 billion.

Texas Instruments paid out dividends worth $942 million in the reported quarter. The company repurchased shares worth $139 million.

Guidance

For third-quarter 2021, Texas Instruments expects revenues between $4.22 billion and $4.58 billion. Earnings are expected to be $1.83-$2.07 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Texas Instruments has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Texas Instruments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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