Up, Up, And Away - Why I See Much More Potential In Texas Instruments

Core Viewpoint - Texas Instruments has shown a strong recovery with a 20% stock return since April, significantly outperforming the S&P 500, and is positioned for future growth through strategic investments and capital allocation [2][28]. Group 1: Company Performance - Texas Instruments has returned 436% over the past ten years, although this is less than the iShares Semiconductor ETF's 902% return [2]. - The company has faced challenges post-pandemic, particularly due to its limited exposure to the AI sector, which has driven semiconductor demand [4]. - Despite these challenges, investor confidence is returning as the company’s investments are expected to yield significant returns [4]. Group 2: Capital Allocation - Texas Instruments is recognized for its superior capital allocation, having spent $94 billion from 2014 to 2023, which is about 50% of its current market cap [5]. - The company has also returned nearly $50 billion to shareholders through dividends and buybacks, achieving a 20-year streak of dividend growth with a ten-year CAGR of 17% [5][7]. - The current dividend yield stands at 2.6% with an 80% payout ratio, and the company has repurchased nearly half of its shares since 2004 [7][9]. Group 3: Investment and Growth Strategy - Texas Instruments is increasing its capital expenditures, spending approximately $5 billion annually in 2024 and 2025 to enhance manufacturing capabilities [16]. - The company is focusing on automation, electrification, and safety, with 75% of its revenue derived from automotive and industrial markets [14]. - Major projects like RFAB2 and LFAB1 are expected to significantly boost production capacity and efficiency, preparing the company for future demand surges [18][21]. Group 4: Financial Projections and Valuation - Analysts project Texas Instruments could achieve revenues between $24 billion and $26 billion by 2026, with potential EBITDA of $13 billion, reflecting a strong growth trajectory [21][23]. - The company maintains a strong balance sheet with expected net debt of $5.4 billion by 2026, equating to just 0.4x EBITDA, and holds an A+ credit rating [23]. - The stock is currently valued at a fair multiple of 14.6x EBITDA, with a potential price target of $250, representing a 24% upside from current levels [25].