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TXN – Market expectations are for record-high Uniform ROA, but management may be concerned about free cash flow, the Lehi fab, and margins

August 12, 2021

  • Texas Instruments Incorporated (TXN:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 23.0x Uniform P/E. At these levels, markets are pricing in bullish expectations for the firm, but management may be concerned about free cash flow generation, the Lehi fab acquisition, and gross margins.
  • Specifically, management may lack confidence in their ability to maintain free cash flow performance, their dividend yield, and the strength of automotive segment results. In addition, they may have concerns about their acquisition of Micron’s 300mm fab in Lehi, persisting acquisition costs, and the sustainability of the current demand cycle. Moreover, management may lack confidence in their ability to meet long-term gross margin guidance and sustain net income growth, and they may be exaggerating their competitive strength in 300mm wafer production.