Thursday, February 01, 2007

Calls of Note Part 2

- Merrill Lynch is raising their already above-consensus earnings estimates on Texas Instruments (NYSE:TXN) from $1.61 to $1.68 for 2007, and from $2.09 to $2.18 for 2008. The changes all flow from revisions to their wireless expectations for TXN. Although they do see slowing wireless growth for the company, they think that the street is being overly conservative.

ML Semi team notes that comments from their colleagues covering the wireless handset business suggest that unit growth this year could be in the 13% range, with 2008 at 8%. They'd already been below the earlier, lower estimates in their own model and the disconnect between the end-market view and our TXN view was becoming too large to ignore. Firm also wanted to make sure that we adequately reflect the potential impact of market share gains by Nokia, as well as TXN's progress at Motorola.

TXN continues to be one of the more reasonably valued stocks in firm's universe of coverage, at 18.6x 2007e GAAP earnings and 14.3x 2008e GAAP earnings. They don't see much gross margin leverage at TXN, but they do see decent operating leverage as the company digs itself out of the 2-quarter revenue hole it's in at the moment. At $35 the stock would still only be slightly above firm's normalized fair value suggested by firm's discount model, and would additionally be on 16x calendar 2008 earnings estimate. Rating stands at buy.

Notablecalls: Expect to see buy interest following the call.

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