Monday, December 04, 2006

Calls of Note Part 4

- Bear Stearns notes they believe that investors with an intermediate term time horizon should
begin to accumulate Texas Instruments (NYSE:TXN) at $29 and below. TXN is trading at 17x 2007 earnings (based on their reduced EPS), close to its past 5 year trough of 16x and at a
discount to its peer group. The lack of near-term catalysts deters the firm from upgrading their rating.

The wireless space in general is plagued by a shift to lower ASP phones, while the analog inventory correction continues. TI is combating the mix shift in wireless with LoCosto, while in analog, they are gaining share in high performance analog as well as exercising great inventory control. Bear thinks that TI is navigating well through some pretty adverse industry circumstances.

The firm is lowering their 4Q06 EPS from $0.43 to $0.41 and 2007 EPS from $1.80 to $1.71. While consensus numbers in print are $0.42 and $1.84 for 4Q06 and 2007, they believe that market expectations are lower. At current levels, they believe that the likelihood of TI lowering the mid-point of its 4Q guidance range on its mid quarter update on 12/11, as well as the risk of 2007 consensus estimates being lowered, are priced in. The downside to TI's wireless business (because of shift to lower end phones) and to its analog business for 4Q06 as well as 1Q07 are well understood by investors.

Maintains Peer Perform.

Notablecalls: As regular readers know I continue to be bearish on TXN. I don't think Bear's call makes much sense as things are likely to continue to worsen in the medium-term. There may be a trade there after the mid-qtr update, though.

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