Texas Instruments TXN or TI is scheduled to report second-quarter 2018 results on Jul 24 after the bell.
The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, with an average positive surprise of 7.48%.
We expect the company to perform well driven by strength in several high-margin and high-growth areas of analog and embedded processing markets. It continues to prudently invest its R&D dollars in these areas. This is gradually expanding its exposure in the industrial and automotive markets, and also increasing dollar content at customers, while reducing exposure to volatile consumer/computing markets.
We observe that shares of Texas Instruments have gained 38.6% over the past 12 months, outperforming the industry’s 14.3% rally.
Expectations From Analog
TI’s analog business has been recording both sequential and year-over-year growth since the last four quarters. This was driven by strong performance in almost all the product lines. In the last reported quarter, this segment generated $2.6 billion, up 14% from the year-ago quarter.
We expect this trend to continue in the to-be-reported quarter as well, given TI’s compelling product line and manufacturing efficiencies that include growing 300-millimeter Analog output. The Zacks Consensus Estimate for Analog segment revenues is currently pegged at $2.7 billion.
Expectations From Embedded Processing
This segment has also been growing on a sequential as well as year-over-year basis since the last four quarters, driven by growth across all product lines. In the first quarter, it generated $926 million, up 17% year over year.
This segment is also expected to do well in the to-be-reported quarter, given the product lines remain strong. The Zacks Consensus Estimate for Analog segment revenues is currently pegged at $947 million.
It has always been a well-executed company. It, along with chipmaker Intel, is one of the few semiconductor companies that depend on internal capacity for manufacturing bulk of its devices.
Since the company usually builds capacity well ahead of demand, it is able to make opportunistic purchases. As a result, the company is able to contain capex at up to 4% of sales even when it is expanding. Management remains focused on increasing free cash flow per share and strengthening competitive advantages.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
Currently, Texas Instruments has a Zacks Rank #2 and an Earnings ESP of +0.96%, which indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are a couple of other stocks that you may also want to consider as our model shows that these also have the right combination of elements to post a positive earnings surprise in the quarter to be reported.
CSX Corporation CSX has an Earnings ESP of +0.07% and a Zacks Rank #1.You can seethe complete list of today’s Zacks #1 Rank stocks here.
Scientific Games Corporation SGMS has an Earnings ESP of +64.71% and a Zacks Rank #2.
NVIDIA Corporation NVDA has an Earnings ESP of +0.48% and a Zacks Rank #3.
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