Despite some disappointment in lack of guidance upside in Texas Instruments' (NYSE:TXN) mid-quarter update, analyst community is mostly sticking with the bottoming theme.
- Citigroup notes that consistent with our fieldwork, bookings are improving, supporting an outlook for "growth" in 2Q07 (cons reflects +7.1% q/q). Recall that their checks suggest Mar/Apr are showing meaningful improvement.
While they are duly disappointed by a lack of guidance increase (they had raised their estimates last Monday), firm remains confident that fundamentals are improving. Firm makes no changes to their estimates.
- JP Morgan notes that as they expected, TI confirmed bookings were improving across the board, in all product categories. Firm believes the company's book-to-bill has increased above 1.0 in both its wireless (35% of 4Q06 revenue) and analog businesses (40% of 4Q06 revenue).
Firm believes TI's earnings power is $2.20 in 2008, driven by share gains in analog and DSPs along with margin expansion. They expect consensus estimates to rise throughout the year and they believe TXN stock has significant upside based on a potential 20X multiple to our assumed $2.20 earnings power for C08.
Concerned on TI's Inventory. Texas Instruments expects to keep utilization rates and inventory roughly flat QoQ during 1Q07, and firm expects 1Q07 inventory to peak at a record 84 days. Firm hopes TI elects to burn down inventory and create margin leverage for 2H07 because the inventory build could mute the margin recovery they expect.
- Merrill Lynch views the uneventful update as great opportunity and raises price objective to $38 from $35. Firm notes Texas Instruments offered very little new information during its mid-quarter update last night, which disappointed investors looking for numbers to be raised. Firm thinks this is a great opportunity to buy an attractively valued stock at the bottom of the business cycle.
Firm says a look at history reveals that TXN never sees "seasonally normal" activity at the top or bottom of industry cycles. The company is coming off a two-quarter hole in revenue that has taken shipments well below the rate of end market consumption. Firm estimates that wireless alone is $200 million to $300 million below real demand. They expect TXN to see significantly stronger than seasonal revenue growth in the second and third quarter of 2007 as revenue renormalizes to meet market demand.
- Goldman Sachs is more cautious, saying that they believe investors expected TI to narrow its guidance towards the high-end of the range and expect reiteration of original mid-points will be viewed as disappointing. Relative to TXN stock, firm believes the risk/reward is not appealing considering the limited upside to previous peak (~10%) and the likelihood of how far away we are from any kind of a real cyclical upturn as they believe that business will assume normal seasonal patterns now that they believe analog distributors have made their "catch-up" orders.
Notablecalls: I believe there is a buying opportunity in the stock today in the $31.50-$32 area. The key theme is still bottoming of the business, making this quarter's numbers secondary compared to order pickup. Just a trade, though, and remember to keep it on tight leash.
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