Texas Instruments earned a sell rating from a Wall Street analyst on Wednesday as the semiconductor company embarks on a long-term “massive” investment cycle. Bernstein analyst Stacy Rasgon downgraded Texas Instruments (Ticker: TXN) stock to underperform the market. He maintained his price target at $145.
In afternoon trading, shares were down nearly 1%, at $169.16.
Rasgon…
Texas Instruments earned a sell rating from a Wall Street analyst on Wednesday as the semiconductor company embarks on a long-term “massive” investment cycle.
Bernstein analyst Stacy Rasgon downgraded Texas Instruments (Ticker: TXN) stock to underperform the market. He maintained his price target at $145.
In afternoon trading, shares were down nearly 1%, at $169.16.
Rasgon finds the stock too expensive. A look at the price-to-earnings ratio shows that Texas Instruments is trading at 22.6 times its expected earnings over the next 12 months. That’s higher than the five-year average of 22.4 listed for the stock on FactSet.
The stock looks more expensive considering Rasgon’s gross margin estimates, which show the metric heading toward 60% or less from 2025 to 2030. The consensus for gross margin ranges from 63% to 65% from 2025 to 2028, according to FactSet. The company delivered 68.8% in 2022. (Gross profit margin is calculated by dividing gross profit by revenue).
The consensus appears to be structurally wrong about the likely trajectory of the company’s gross margins as capital expenditures rise [capital expenditure] “Rolls across the form,” Rasgon wrote.
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Texas Instruments has projected capital spending to average about $5 billion per year from 2023 to 2026. The company is moving to add the ability to produce products at a much lower cost to service demand. CEO Haviv Ilan called the move a “new stage of development” for the company in a conference with Bernstein in June.
“We won’t hit them for that [capital expenditure strategy]”But we believe it is likely to result in structural underperformance as it goes into effect,” Rasgon said in a note Wednesday.
The company did not respond to a Barron Request for comment on the impact of expenses on gross margin over time.
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