Texas Instruments Incorporated (TXN) Has Upside Potential

Competitors

QUALCOMM, Inc. (NASDAQ:QCOM) rose from being the sixth largest chip maker in 2011 to being the third largest chip maker in 2012. It has surpassed Texas Instruments in ranking because of the 29.2% rise in revenue. Its current market share is 4.3%, while it is 3.7% for Texas Instruments. The major growth segment for QUALCOMM, Inc. (NASDAQ:QCOM)is its wireless business, which was the only sector in the chip business to grow in 2012.

Driven by strong performance last year, the stock has been steadily rising since last July. Its trailing P/E ratio is 17.05, which is almost equal to the industry average. Its forward P/E is 13.15, indicating an optimistic increase in its EPS. The EPS growth forecast for the next five years is more than 18%. Therefore, the stock has a huge upside potential and investors ready to hold it for long term might want to invest in this stock.

STMicroelectronics N.V. (ADR) (NYSE:STM) is one of the major players in the fragmented semiconductor industry, with around 3% market share. It is Europe’s largest semiconductor chip-maker, based on revenue. It is also currently winding down its wireless venture with Ericsson AB, which has contributed to six consecutive quarterly losses. Its first quarter net loss was $171 million, bringing total loss over the last six quarters to about $1.3 billion.

After giving returns of around 65% to investors from November 2012 to February 2013, the stock is currently on a downward trend. It has fallen more than 20% since then. The trailing P/E ratio of the company is negative, while forward P/E ratio is 11.54. The EPS growth forecast for the next few years is also moderate. Therefore the stock is not expected to give much return to investors.

Conclusion

Texas Instruments has been expanding its analog and embedded portfolio every quarter. The company can currently support $5 billion of additional revenue without making any additional capital outlays. Due to continued capital expenditure to expand capacity, there might not be enough short term impact on the financial performance, but this is expected to increase the market share of the company in the analog division in future. Since both analog and embedded processor markets are fragmented with a number of players, the company has enough opportunities to gain more market share.

For 2Q13, the company expects revenue to be in the range of $2.93-$3.17 billion, while EPS to be in the range of $0.37-$0.45. It is currently trading with a trailing P/E ratio of 23.05, which is almost in line with the industry average. The forward P/E ratio is 16.98. This indicates higher than expected EPS growth. The EPS growth forecast for the next five years is more than 13%. The company also gives out enough dividends and has plans to buyback a huge chunk of shares in the years to come. Therefore, the stock is expected to give considerable returns to investors in mid to long-term.

The article This Semiconductor Company Has Upside Potential originally appeared on Fool.com.

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