Monday, September 13, 2010

Texas Instruments: Ignore the Headlines

Texas Instruments (TXN) provided updated guidance for Q3 last Thursday after the market closed and the headlines continue to suggest that TXN guided down or provided less then stellar results. The fact is that TXN guided to the exact midpoints as before - they raised the lower end and lowered the upper end by equal amounts. Why then does the media keep suggesting that TXN along with other semiconducter stocks like Intel (INTC) is forecasting a declining market? My guess is that nobody in the media actually read the TXN release. Here are the details from Q3 2010 Business Outlook:

  • Revenue:  $3.62 – $3.78 billion, compared with the prior range of $3.55$3.85 billion
  • EPS:  $0.66 – $0.72, compared with the prior range of $0.64$0.74.

Lets analyze the facts: The revenue mid-point was $3.7B before and now its $3.7B. The EPS mid-point was $0.69 before and $0.69 after. The average analyst estimate is $0.69 and TXN reported $0.62 in Q2.

Still looking for any negatives. Ok, the negative could be that TXN didn't guide up but honestly that stock should trade at something rich closer to 20x EPS estimates to warrant that. TXN maintained the mid-point which matches analyst estimates. Its some 10% higher than the previous quarter. Doesn't suggest that demand is falling rather then a market that wasn't as robust as some market participants hoped. Though if these investors hoped for higher results they sure didn't actually invest in the stock with those expectations. Less then a 10 PE isn't suggestive of a market expecting much growth or beating analyst estimates.

TXN remains a favorite of the Net Payout Yield portfolio with its 2% dividend yield and significant buybacks over the years. If the stock wants to sell off because the media along with most analysts can't read a press release, then TXN will take advantage of the situation and buy more stock at lower levels. The market will clue in at a latter date.

Sample Media reports:

Spending Sputters for Chipmakers - theStreet.com
Are storm clouds gathering over the tech sector? If recent comments from chipmakers Texas Instruments(TXN) and National Semiconductor(NSM) are anything to go by, all is not well -- especially with PCs. (No because TXN doesn't focus on just PCs)

Chip stocks drop amid signs of weakening demand - AP
Disappointing sales forecasts from National Semiconductor Corp. and Texas Instruments Inc. triggered the sell-off. Both those chip makers lowered their revenue targets for the current quarter after the market closed Thursday. (Huh... TXN did not lower its revenue target)

These were just a couple of snippets from 2 reports on TXN from last Friday. Examples of why investors must do their own homework or they will be whipsawed by the markets. The media seems to feed on misinformation without confirmation as these snippets were constantly repeated. The stock behaved very well after a mid morning sell off. Obviously the 'real' investors caught onto the fact that TXN actually talked about how industrial and wireless sectors were performing better then expected. Its very possible that the recent weakness in the PC sector has more to do with exceptional demand from the iPad as opposed to weakness in the economy. These days its too easy to say the economy is weak and seem rigorous even though in the case of TXN that clearly is a mistake.

TXN remains a great investment for the Net Payout Portfolio based on the facts and not the headlines.

Disclosure: Long TXN

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