After the market bottomed in March ’20, there have been a number of stocks that have experienced huge bounces of 200%, 300%, and more. There have been some pretty phenomenal charts created as a result, but I don’t think I’ve seen a chart that shows a consistent climb to the degree of Texas Instruments (TXN).
After dropping to a low of $92.31 last March, the stock has been on a continuous trek higher with very few disruptions and it recently peaked at $197.58. The consistency has helped a trend channel form that defines the different cycles—even though the downward cycles have been brief.
The 13-week moving average is almost a straight line and it’s pretty close to a perfect 45-degree angle. When you look at as many charts as I do each day, every once in a while one jumps out for one reason or another. In the case of Texas Instruments, the chart jumped out at me for how clean the trend higher has been.
Since last March’s low, the longest losing streak Texas Instruments has suffered was only three weeks. There have only been three instances where the stock fell for two straight weeks.
While the chart is very pretty (my wife thinks I’m crazy for making statements like that), the reason I am looking at Texas Instruments right now is because the company is getting ready to release first-quarter earnings results on April 27.
Analysts Expect Texas Instruments to Post Strong EPS and Revenue Growth
Over the last few years, Texas Instruments has seen somewhat low EPS and revenue growth rates, but the growth rates have jumped in recent quarters. In the fourth quarter of 2020, earnings jumped 61% while revenue increased by 22%. Over the last three years, earnings have only grown at an annual rate of 5% while revenue has actually declined by an average of 4% per year.
The current consensus estimate for Q1 is for EPS of $1.58 and that is 27.4% higher than the $1.24 the company reported last year. Revenue is expected to come in at $3.99 billion and that is 19.9% higher than the $3.33 billion the company reported in Q1 last year.
For 2021 as a whole, earnings are expected to increase by 15.8% and revenue is expected to jump by 15%.
The growth rates for the last few quarters and the expected growth rates are impressive, but so are the profitability measurements. The return on equity is incredible at 58.4% and the profit margin is just as impressive at 41.6%.
If we look at the overall fundamental picture, it’s no wonder why Texas Instruments gets a “buy” rating from Tickeron’s scorecard. The fundamental screener shows positive readings for four different indicators and only one negative reading. The one negative is the Outlook rating. The best score comes from the Profit vs. Risk rating and the Valuation rating is almost as high. The SMR rating, which measures sales growth, profit margin, and return on equity, is extremely good as well. The final positive reading comes from the Price Growth rating.
Given the strong growth and the chart, I was very surprised by the valuations. The trailing P/E is 31 and the forward P/E is 28.25. Both of those readings are below the industry averages.
Analysts and Investors Are Less Optimistic about Texas Instruments
Turning our attention to the sentiment indicators for Texas Instruments, analysts and investors are slightly more pessimistic toward the company than they are the average stock. There are 31 analysts covering the stock at this time with 16 “buy” ratings. There are 10 “hold” ratings and five “sell” ratings. The buy percentage is 51.6% and that is below the average buy percentage which falls in the 65% to 75% range.
The short-interest ratio for the stock is at 3.08 currently and that falls right in the heart of the average range. When you look at the positive fundamentals and the chart, you would expect the short-interest ratio to be lower than average, at least that’s how I look at it. The ratio has been pretty consistent since the beginning of the year.
One more indicator that shows slight pessimism toward Texas Instruments is the put/call ratio. Looking at the open interest from the April 30 option series out through next January, there are 103,472 puts open and 86,728 calls open. This gives a put/call ratio of 1.19 and that is above average and reflects more pessimism.
Breaking all the analysis styles down, I think Texas Instruments should continue higher over the long term. With the stock being overbought at this time, we could see a short-term pullback that brings it back down to the lower rail of the channel and that could be a buying opportunity. The fundamentals are strong, the stock is trending higher, and the sentiment shows that investors are far from overly bullish on the stock. That is usually a pretty good combination for owning a stock.
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