Should You Buy This Future Dividend Aristocrat After Q3 Earnings?

Texas Instruments (TXN) is a dividend stock that has generated massive wealth for shareholders. In the last 20 years, TXN stock has returned 821% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much closer to 1,300%. 

With over two decades of consistent dividend growth, let’s see if you should invest in this future Dividend Aristocrat after its Q3 earnings. 

How Did Texas Instruments Perform in Q3 of 2024?

Valued at a market cap of $188.4 billion, Texas Instruments (TXN) is a legacy semiconductor giant that designs, manufactures, and sells chips for the industrial, automotive, electronics, communications equipment, and enterprise systems industries. 

TXN operates via two primary business segments: Analog offers power products to manage power requirements using battery-management solutions, switching regulators, power switches, and lighting products; and Embedded Processing offers microcontrollers used in electronic equipment, digital signal processors, and application processors for computing activity. 

In Q3 of 2024, Texas Instruments reported revenue of $4.15 billion on adjusted earnings of $1.47 per share, surpassing Wall Street's estimates of $4.1 billion and $1.36 per share, respectively. In the year-ago quarter, Texas Instruments reported revenue of $4.53 billion and adjusted earnings of $1.80 per share. 

While sales were down 8%, adjusted earnings narrowed by 21% over the last 12 months. Due to cyclical softness in the chip industry, particularly among those with significant exposure to autos, the company has now reported a decline in sales and earnings for eight consecutive quarters. 

In the current quarter, TXN forecasts revenue of $3.85 billion on earnings of $1.18 per share, which came up short against estimates of $4.06 billion and $1.34 per share, respectively. That implies expectations for continued revenue and EPS declines; in the year-ago period, the chip giant reported sales of $4.08 billion and earnings of $1.49 per share. Wall Street expects the company’s sales and earnings to decline until Q1 of 2025. 

Texas Instruments currently pays shareholders a quarterly cash dividend of $1.36 per share, which translates to a forward yield of 2.63% - more generous than the average SPX yield. The 5-year dividend growth rate is a healthy 11%. These payouts have increased consistently for 21 consecutive years, putting TXN on pace to join the elite Dividend Aristocrats lineup before the end of this decade. 

How Do Analysts Rate TXN Stock?

Texas Instruments was hit with a mixed bag of brokerage notes after its latest quarterly results. 

On the bullish side, analysts at Summit upgraded Texas Instruments stock to “outperform” because it expects the company to grow earnings and recover from higher demand as the current downcycle ends in 2025. 

The chipmaker is seeing a recovery in demand across end markets such as personal computers, smartphones, consumer, enterprise systems, and communications infrastructure. While end-markets such as industrial and automotive remain mixed, analysts expect strong EV demand to act as tailwinds for TXN. Summit believes cyclical demand recovery across non-industrial verticals will lead to an outperformance in earnings next year. 

Separately, Benchmark reiterated a “Buy” rating on TXN with a target price of $230. The investment firm believes its elevated inventory level should help TI compete aggressively for sockets while showcasing its supply and capacity strengths in core markets. 

Much less enthusiastic is Morgan Stanley, which backed an “Underweight” rating on the tech stock and raised its target price to $167 from $154, which is still below current prices.

Morgan Stanley analyst Joseph Moore expects strong automotive demand from China to impact Texas Instruments in the near term positively, but the firm estimates TXN will report sales of $3.98 billion and earnings of $1.29 per share in the current quarter, below consensus forecasts. 

Splitting the difference is TD Cowen, which maintained a “Hold” rating on TXN stock with a price target of $200. According to TD, the next two quarters are seasonally weak for TXN, suggesting that the top line may not stabilize until Q2 of 2025. 

Overall, the consensus on TXN right now is a “Moderate Buy” among the 28 analysts in coverage, with a mean price target of $212.40 - implying expected upside of just 3% from here.

Analysts expect Texas Instruments to end 2024 with adjusted earnings of $5.10 per share, down from $7.07 per share in 2023. In 2025, its adjusted earnings are forecast at $5.92. So, priced at 35x forward earnings, TXN stock trades at a relatively lofty valuation right now, given its cyclical nature. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.