Texas Instruments Quarterly Valuation – June 2014 $TXN

500px-Texas_Instruments_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Texas Instruments (TXN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Texas Instruments Inc. (TI) designs and makes semiconductors that the Company sells to electronics designers and manufacturers all over the world. The Company has four segments: Analog, Embedded Processing, Wireless and Other. The Company’s products, more than 100,000 orderable parts, are integrated circuits that are used to accomplish many different things, such as converting and amplifying signals, interfacing with other devices, managing and distributing power, processing data, canceling noise and improving signal resolution. The Company sells catalog and, to a lesser extent, custom semiconductor products. The life cycles of catalog products generally span multiple years, with some products continuing to sell for decades after their initial release. The life cycles of custom products are generally determined by end-equipment upgrade cycles and can be as short as 12 to 24 months. In December 2013, TI acquired a building in the Chengdu Hi-Tech Zone from UTAC Chengdu Ltd.

TXN Chart

TXN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $48.13
MG Value $20.58
MG Opinion Overvalued
Value Based on 3% Growth $28.45
Value Based on 0% Growth $16.68
Market Implied Growth Rate 8.02%
Net Current Asset Value (NCAV) $0.04
PEmg 24.53
Current Ratio 3.38
PB Ratio 4.89

Balance Sheet – 3/31/2014

Current Assets $8,360,000,000
Current Liabilities $2,471,000,000
Total Debt $4,652,000,000
Total Assets $18,935,000,000
Intangible Assets $6,615,000,000
Total Liabilities $8,315,000,000
Outstanding Shares 1,079,350,000

Earnings Per Share

2014 (estimate) $2.12
2013 $1.94
2012 $1.53
2011 $1.91
2010 $2.66
2009 $1.15
2008 $1.45
2007 $1.83
2006 $1.69
2005 $1.39
2004 $1.05

Earnings Per Share – ModernGraham

2014 (estimate) $1.96
2013 $1.87
2012 $1.80
2011 $1.89
2010 $1.84
2009 $1.45

Dividend History

TXN Dividend Chart

TXN Dividend data by YCharts


Texas Instruments is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has issues with the lack of sufficient earnings growth over the last ten years as well as the high PEmg and PB ratios. The passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of ModernGraham’s valuation of Analog Devices Inc. (ADI).  From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2010 to only an estimated $1.96 for 2014.  This very low level of demonstrated growth does not support the market’s implied estimate of 8.02% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formulas, to return an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Texas Instruments (TXN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Texas Instruments (TXN)!

Disclaimer:  The author did not hold a position in Texas Instruments (TXN) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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