Why Texas Instruments, Incorporated Might Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Texas Instruments, Incorporated (NASDAQ: TXN  ) had a sluggish Thursday after Nomura Securities downgraded the chip giant from "Neutral" to "Reduce."

So what: Along with the downgrade, analyst Romit Shah reiterated his price target for $33, representing about 23% worth of downside to yesterday's close. While momentum traders might be attracted to the stock's steady rise in 2013, Shah believes that much of Texas Instruments' growth prospects are already baked well into its valuation.

Now what: Nomura expects Texas Instruments to earn $2.20 per share in 2014. "Margin benefits from optimizing free cash flow that have been a big boost to the stock may have run their course," cautioned Nomura. "In addition, we believe that revenue growth despite a diminishing wireless drag may continue to be modest. Furthermore, we estimate that share repurchases at current levels are barely reducing share count." With Texas Instruments still up about 40% from its 52-week lows and trading at a P/E of 25, I'd agree that holding out for a wider margin of safety is the prudent move.

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9/26/2016 4:00 PM
TXN $68.42 Down -0.56 -0.81%
Texas Instruments CAPS Rating: ***