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It has been about a month since the last earnings report for Texas Instruments (TXN). Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Texas Instruments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Texas Instruments Beats on Q2 Earnings
Texas Instruments reported second-quarter 2021 earnings of $2.05 per share, which surpassed the Zacks Consensus Estimate by 12.6%. The bottom line also surpassed management’s guidance of $1.68-$1.92 per share.
The figure increased 39% year over year and 9.6% sequentially.
The company reported revenues of $4.6 billion, which beat the Zacks Consensus Estimate of $4.3 billion. The top line also comfortably surpassed the management’s guidance of $4.13-$4.47 billion.
The top-line figure improved 41% from the year-ago quarter and 6.8% from the prior quarter.
Top-line growth was driven by strong performance delivered by the Analog and Embedded Processing segments. Growing momentum across personal electronics, automotive and industrial end-markets, owing to solid demand environment, contributed well.
However, softness in the communication equipment market was an overhang in the reported quarter.
Nevertheless, the company’s efficient manufacturing strategies and continuous returns to shareholders remain tailwinds. Its strong investments in growth avenues and competitive advantages are the positives.
The uptrend in personal electronics, owing to the rising demand for electronic gadgets for remote-working and entertainment amid the pandemic, is likely to benefit the company in the days ahead.
End-Market in Detail
Revenues in the industrial market grew 40% from the year-ago quarter, owing to solid momentum across most sectors.
Strong traction of the company across the major sectors led to year-over-year growth of 25% in revenues from the personal electronics market in the reported quarter.
The company’s revenue growth in the automotive market more than doubled from the year-ago quarter. Continuous recovery in the automotive space remained a tailwind.
Meanwhile, revenues in the communications equipment market declined year over year in the upper teens. Enterprise systems’ revenues were flat on a year-over-year basis.
Segments in Detail
Analog: The company generated $3.5 billion from the segment (75.6% of total revenues), which increased 42% from the year-ago quarter.
Embedded Processing: The segment generated $780 million in revenues (17% of total revenues), up 43% year over year.
Other: Revenues in the segment were $336 million (7.4% of total revenues). The figure was up 30% from the prior-year quarter.
Texas Instruments’ gross margin of 67.2% expanded 290 basis points (bps) from the year-ago quarter.
As a percentage of revenues, selling, general and administrative expenses contracted 310 bps year over year to $425 million in the reported quarter.
Research and development expenses of $391 million contracted 320 bps from the year-ago quarter as a percentage of revenues.
Operating margin was 48.3%, which expanded significantly from 37.9% in the prior-year quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2021, the cash and short-term investment balance was $7.4 billion, which increased from $6.7 billion as of Mar 31, 2021.
At the end of the reported quarter, the company had long-term debt of $5.7 billion, up from $6.2 billion in the prior quarter.
Current debt was $499 million in the second quarter, which was nil in the previous quarter.
The company generated $2.1 billion of cash from operations, up from $1.9 billion in the previous quarter.
Capex was $386 million in the reported quarter. Further, free cash flow stood at $1.7 billion.
Texas Instruments paid out dividends worth $942 million in the reported quarter. The company repurchased shares worth $146 million.
For third-quarter 2021, Texas Instruments expects revenues between $4.40 billion and $4.76 billion. Earnings are expected to be $1.87-$2.13 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
Currently, Texas Instruments has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Texas Instruments has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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