Is Texas Instruments (TXN) Cheap After Rising Oil Prices And Treasury Yields Hit Semis?

The latest move in Texas Instruments (TXN) has been driven less by company specific news and more by macro shocks, as rising crude prices and higher Treasury yields have increased concerns about inflation and borrowing costs.

Over the past few months, Texas Instruments’ share price has cooled, with a 30 day share price return down 5.29% and a 90 day share price return down 16.56%. Yet the year to date share price return of 43.53% and 1 year total shareholder return of 33.54% still point to earlier strong momentum that the recent macro driven pullback has started to fade.

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For Texas Instruments, the recent pullback sits between two stories. One points to pressure on a solid, capacity heavy business model. The other looks more like sentiment swinging around macro headlines. Which story fits the current valuation?

Most Popular Narrative: 41.5% Undervalued

Against a last close of $254.80, the most followed narrative on Texas Instruments points to a fair value of $435.69, which implies a sizeable gap that this model seeks to explain.

Texas Instruments is in the midst of a multiyear capacity-expansion cycle that is temporarily suppressing free cash flow but materially enhancing the company’s long-term competitive position. The buildout of U.S.-based 300mm analog manufacturing is expected to structurally improve cost efficiency, support higher gross margins, and increase supply-chain resilience. As these assets ramp and utilization normalizes, TXN is expected to move back toward its historical free-cash-flow profile, supported by diversified end-market exposure across industrial, automotive, aerospace/defense, and energy infrastructure.

According to niteco, Read the complete narrative.

Want a closer look at why this Texas Instruments narrative supports such a large gap to the current price? The key inputs span revenue growth, margins and the valuation multiple. The interplay between those assumptions is where the full story sits.

Result: Fair Value of $435.69 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Texas Instruments still faces risks if the capacity build ties up cash longer than expected or if demand from key industrial and automotive customers weakens.

Find out about the key risks to this Texas Instruments narrative.

Another View on Texas Instruments’ Valuation

While the popular Texas Instruments narrative points to a large upside, our DCF model tells a different story. At a recent share price of $254.80, Texas Instruments is trading above an estimated future cash flow value of $239.65, which screens as overvalued on this measure.

This gap between a narrative driven upside case and an overvalued DCF output raises a practical question. Which set of assumptions about cash generation feels more realistic for you as an investor, and how much weight should you place on each model when judging today’s price?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Texas Instruments for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment on Texas Instruments split between risks and rewards, it makes sense to move quickly and review the data firsthand so you can decide where you stand. To frame that view with clear context, take a look at the 3 key rewards and 2 important warning signs

Looking for more investment ideas beyond Texas Instruments?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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