Texas Instruments Inc (TXN.O)_ Capital Mgmt Call_ Coming to the End of Capex Investing Cycle. Top Pick in Analog with Peak EPS of over $10. Reiterate Buy

Summary of Texas Instruments Inc (TXN) Capital Management Call Company Overview - Company: Texas Instruments Inc (TXN) - Industry: Semiconductor - Market Cap: $164.49 billion [7] Key Points Capital Expenditure and Financial Targets - TXN reiterated its capital expenditure (capex) plans, maintaining a capex spend of $5 billion for 2025 and a floor of $2 billion for 2026, contingent on revenue growth [2][11] - The company is nearing the end of its capex investing cycle, which is expected to transition from a depreciation headwind to a tailwind in the coming years [11][21] Inventory and Sales Expectations - An analog inventory replenishment is anticipated in 2025, as sales remain approximately 25% below peak levels [2][12] - TXN is expected to benefit significantly from this replenishment due to its expanded 300mm manufacturing capacity [10][12] Earnings Projections - TXN is projected to achieve peak sales of $20 billion, with peak gross margins of 70% and peak operating margins of 52%, leading to a long-term peak EPS of over $10.00 [3][17] - Free cash flow (FCF) per share is expected to grow from $1.64 in 2024 to between $8 and $9 as sales recover to 2022 levels [4][31] Valuation and Investment Rating - The current target price for TXN is set at $235.00, reflecting a 30.2% expected return, with a Buy rating reiterated based on anticipated 100% EPS growth [5][35] - TXN trades at a premium to peers, justified by its quality and growth potential [36] Margin and Cost Structure - TXN's operating margins have decreased significantly, from 53.6% in 1Q22 to an estimated 29.5% in 1Q25, but are expected to recover as the high capex phase concludes [21] - The company plans to increase the proportion of revenue manufactured on its 300mm facility from 60% to 70% by 2026, which could reduce costs by 40% compared to 200mm wafers [26] Market Position and Risks - TXN has shifted its revenue mix towards industrial and automotive markets, increasing from 46% in 2015 to 69% in 2024, which may provide margin benefits [29] - Risks include dependence on the industrial end market, competition from companies like Analog Devices and Microchip, and potential product obsolescence due to lower R&D spending compared to competitors [41][42] Financial Performance Metrics - Projected revenue for 2025 is $16.7 billion, with a gradual increase to $20 billion by 2027 [9] - EPS estimates for 2025 are projected at $5.38, with further growth expected in subsequent years [6] Conclusion - Texas Instruments Inc is positioned to benefit from an anticipated recovery in analog inventory and has a strong outlook for earnings growth, supported by strategic capex and a favorable shift in market focus. The company remains a top pick in the analog semiconductor space, with a solid investment rating and growth potential.