Bernstein analyst Stacy Rasgon downgrades Texas Instruments stock to Underperform
Texas Instruments, the semiconductor company known for its innovative designs and manufacturing, received a Sell rating from Wall Street analyst Stacy Rasgon on Wednesday. As the company embarks on a “massive” long-term investment cycle, shares of Texas Instruments experienced a 2% decline in premarket trading, currently sitting at $167.28. Rasgon maintained his price target of $145, noting concerns over the stock’s expensive valuation.
An Expensive Valuation
Rasgon’s assessment focuses on Texas Instruments’ price-to-earnings (P/E) ratio, which currently stands at 22.6 times its expected earnings over the next 12 months. This figure surpasses the stock’s five-year average of 22.4, as reported by FactSet. Furthermore, considering Rasgon’s projections for gross margin, the stock appears even more costly. The analyst anticipates a decline in the metric, with estimates pointing towards 60% or lower between 2025 and 2030. In contrast, consensus estimates from FactSet suggest a gross margin range of 63% to 65% from 2025 to 2028, with the company achieving a gross margin of 68.8% in 2022. Rasgon argues that the market consensus fails to accurately model the potential trajectory of Texas Instruments’ gross margins due to elevated capex (capital expenditure).
“New Phase of Evolution”
Texas Instruments has outlined plans for an average annual capital expenditure of approximately $5 billion between 2023 and 2026. This investment aims to expand the company’s production capacity and effectively meet growing demand at a significantly lower cost. CEO Haviv Ilan described this strategic move as a “new phase of evolution” during a conference with Bernstein in June. While Rasgon acknowledges the company’s proactive capital expenditure strategy, he believes it may result in structural underperformance in the long run.
In light of these factors, Stacy Rasgon downgraded Texas Instruments stock to Underperform. The company finds itself at a crucial juncture as it navigates an extensive investment cycle and seeks to strike a balance between expansion and financial performance. Retail investors and industry analysts closely monitor Texas Instruments as they gauge the impact of its strategic decisions on the market’s perception and the company’s future growth potential.
