Can Analog Strength Aid Texas Instruments (TXN) Q4 Earnings?

Texas Instruments (NASDAQ:TXN) or TI is scheduled to report fourth-quarter 2018 results on Jan 23, after market close.

The company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with average positive surprise of 3.07%.

We expect Texas Instruments to perform well in the to-be-reported quarter, on the back of strength in several higher-margin and high-growth market areas. Also, it is gradually expanding exposure in industrial and automotive markets, which should benefit the upcoming results.

We observe that shares of Texas Instruments have lost 16.2% over the past 12 months compared with its industry’s decline of 12.1%.

Expectations From Analog

TI’s analog business has been recording both sequential and year-over-year growth over the last four quarters, driven by strong performance in almost all its product lines. In the last reported quarter, this segment generated revenues of $2.9 billion, up 8% from the year-ago quarter.

We expect this trend to continue in the to-be-reported quarter as well, given TI’s compelling product line and manufacturing efficiencies that include growing 300-millimeter Analog output. The Zacks Consensus Estimate for Analog segment revenues is currently pegged at $2.6 billion.

Expectations From Embedded Processing

In the third quarter, it generated $894 million revenues, down 4% year over year. This was primarily owing to weak performance of processors during the quarter. Further, sluggishness in the communications equipment market remained negative throughout the quarter, without which the revenues within this segment would have reflected growth.

The Zacks Consensus Estimate for Embedded Processing revenues is currently pegged at $839 million.

Overall Picture

TI has always been a well-executed company. Management remains focused on increasing its free cash flow per share and strengthening competitive advantages. However, increasing competition in the auto and industrial space, along with unfavorable currency impact may hurt its results.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Currently, Texas Instruments has a Zacks Rank #3 and an Earnings ESP of 0.00%, making surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of stocks that you may want to consider, as our model shows that these have the right combination of elements to post a positive earnings surprise in the quarter to be reported.

Amazon.com Inc. (NASDAQ:AMZN) has an Earnings ESP of +0.68% and carries a Zacks Rank #2.

KeyCorp (NYSE:KEY) has an Earnings ESP of +0.80% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waters Corporation (NYSE:WAT) has an Earnings ESP of +2.45% and holds a Zacks Rank #3.

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