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Texas Instruments TXN reported fourth-quarter 2020 earnings of $1.80 per share, which surpassed the Zacks Consensus Estimate by 34.3%. The bottom line also surpassed management’s guidance of $1.20-$1.40 per share.
Further, the figure increased 61% year over year and 24.1% sequentially.
The company reported revenues of $4.08 billion, which beat the Zacks Consensus Estimate by 12.5%. The top line also comfortably surpassed the management’s guidance of $3.41-$3.69 billion.
Further, the top-line figure improved 22% from the year-ago quarter and 6.8% from the prior quarter.
Top-line growth was driven by improving end-market conditions. Solid demand in the personal electronics and industrial market, and strong recovery in the automotive market remained major tailwinds. Further, the strong performance delivered by the Analog segment contributed well.
However, softness in the enterprise systems and communication equipment markets were overhangs. Further, uncertainties related to the current pandemic situation have been concerning.
Nevertheless, the company’s portfolio of long-lived products and efficient manufacturing strategies are tailwinds. Additionally, continuous returns to shareholders are likely to help the stock gaining investors' confidence further.
Further, the uptrend in personal electronics, owing to the rising demand for electronic gadgets for remote working and entertainment during the pandemic, is likely to benefit the company in the days ahead.
Also, its strong investments in new growth avenues and competitive advantages are the positives.
Additionally, the company's strong first-quarter 2021 guidance is likely to instill investor optimism in the stock.
Coming to the price performance, Texas Instruments has returned 33.9% over a year compared with the industry's growth of 32.1%.
End-Market in Detail
The continued rebound in the automotive space led to 19% and 25% growth in revenues of the company from this end-market on a sequential and a year-over-year basis, respectively.
Further, revenues in the industrial market grew 7% from the prior quarter and 16% from the year-ago quarter, owing to solid momentum across most sectors.
Additionally, strong traction of the company across major sectors led to sequential growth of 11% and year over year growth of 39% in the company’s revenues from the personal electronics market in the reported quarter.
Meanwhile, revenues in the communications equipment market declined 28% and 8% from the previous quarter and the prior-year quarter, respectively.
Also, enterprise systems’ revenues were down 2% and 13% on a sequential and a year-over-year basis, respectively.
Segments in Detail
Analog: The company generated $3.13 billion from the segment (76.7% of total revenues), which increased 25% from the year-ago quarter and 9% from the previous quarter.
Embedded Processing: The segment generated $720 million in revenues (17.7% of total revenues), up 11% sequentially and 14% year over year.
Other: Revenues in the segment were $229 million (5.6% of total revenues). The figure was up 4% from the prior-year quarter but down 23.9% from the previous quarter.
Texas Instruments Incorporated Price, Consensus and EPS Surprise
Texas Instruments Incorporated price-consensus-eps-surprise-chart | Texas Instruments Incorporated Quote
Texas Instruments’ gross margin of 64.9% expanded 230 basis points (bps) from the year-ago quarter.
As a percentage of revenues; selling, general and administrative (SG&A) expenses contracted 250 bps year over year to $398 million in the reported quarter.
Further, research and development expenses of $388 million contracted 200 bps from the year-ago quarter as a percentage of revenues.
Operating margin was 44.5%, which expanded 720 bps from the prior-year quarter.
Balance Sheet & Cash Flow
As of Dec 31, 2020, the cash and short-term investment balance was $6.6 billion, which increased from $5.5 billion as of Sep 30, 2020.
At the end of the reported quarter, the company had long-term debt of $6.248 billion, up from $6.247 billion in the prior quarter.
Current debt remained flat at $550 million compared with the previous quarter.
The company generated $2.1 billion of cash from operations, up from $1.4 billion in the previous quarter.
Capex was $212 million in the fourth quarter. Further, free cash flow stood at $1.9 billion.
We note that efficient manufacturing strategies, portfolio strength and solid contributions from the company’s 300-millimeter Analog production benefited cash flows during the fourth quarter.
Additionally, Texas Instruments paid out dividends worth $937 million during the reported quarter. Further, the company repurchased shares worth $15 million.
For first-quarter 2021, Texas Instruments expects revenues between $3.79 billion and $4.11 billion. The Zacks Consensus Estimate for revenues is pegged at $3.6 billion.
Earnings are expected to be $1.44-$1.66 per share. The Zacks Consensus Estimate for earnings is pegged at $1.34 per share.
Zacks Rank & Other Stocks to Consider
Currently, Texas Instruments carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Square, Inc. SQ, Alphabet Inc. GOOGL and Garmin Ltd.GRMN. All three companies carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rates of Square, Alphabet and Garmin are pegged at 32.99%, 16.93% and 6.8%, respectively.
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