Baird raises Texas Instruments stock to Outperform

On Monday, Baird analyst Tristan Gerra upgraded Texas Instruments stock (NASDAQ:TXN) from Neutral to Outperform, setting a price target of $175.00. The upgrade comes as the stock trades near its 52-week low of $150.96, with InvestingPro data showing the stock has declined about 16% in the past week. Gerra cited a series of positive cycle indicators and the company’s effective management of pricing during the previous upcycle as key reasons for the upgrade. According to Gerra, semiconductor stocks typically see a rebound prior to a cyclical recovery, and Texas Instruments is well-positioned in this regard, supported by its strong dividend history of 21 consecutive years of increases.

Lead times for the company have normalized since the second half of 2024, which is a positive sign for near-term revenue as it indicates that shipments are catching up with demand. Despite the common downturn indicated by declining lead times, Gerra noted that Texas Instruments is showing signs of a rebound. The company maintains strong fundamentals with a gross profit margin of 58% and healthy liquidity, as indicated by a current ratio of 4.12. Additionally, the pricing for cyclical components such as MCUs and analog has retracted significantly from their peak in 2022.

Capital expenditures (Capex) have also seen a significant decline from their peak, with Texas Instruments being an exception. However, Gerra anticipates that the company’s capex intensity will begin to decline in 2026. Utilization rates are another metric showing positive signs, with Gerra contending that they have reached historical troughs and bottomed in the first quarter of 2025, both for the year and for the cycle. According to InvestingPro analysis, the company maintains a moderate debt level with a debt-to-equity ratio of 0.85, suggesting balanced capital allocation.

Operational expenditure reductions, a typical indicator of a severe cyclical downturn, have been announced, which Gerra sees as a green light. Inventory days are moving closer to normalization, and Gerra expects them to return to historical levels by the end of the year. Notable inventory improvements have been observed in the mobile phone and automotive segments.

Finally, Gerra pointed out that valuations for some analog companies have moved to price-to-book valuations, suggesting limited earnings visibility one year forward. InvestingPro data shows Texas Instruments currently trades at a P/B ratio of 8.15, with analysts projecting continued profitability for the year ahead. This is similar to valuation metrics used in the highly cyclical memory segment. With these indicators in mind, Baird has also upgraded Diodes (NASDAQ:DIOD) to Outperform from Neutral, alongside Texas Instruments. For deeper insights into TXN’s valuation and 14 additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.

In other recent news, Diodes Incorporated received an upgrade from Baird, as analyst Tristan Gerra raised the stock rating to Outperform while adjusting the price target to $50 from $72. This change reflects a positive outlook for the semiconductor sector, despite normalization in lead times and inventory levels, which are expected to stabilize by the end of the year. Meanwhile, Texas Instruments has launched the MSPM0C1104, the world’s smallest microcontroller, designed to optimize space in compact applications without compromising performance. This addition to their MCU portfolio underscores the company’s commitment to innovation in semiconductor solutions.

Texas Instruments also received attention from analysts, with Truist Securities maintaining a Hold rating and a $195 price target, reflecting stability in the company’s capital management strategy. Citi analysts reiterated a Buy rating with a $235 target, expressing confidence in the company’s potential for analog inventory replenishment and growth. Benchmark also maintained a Buy rating with a $230 target, noting high inventory levels as a strategic advantage for Texas Instruments in capturing market share. These developments highlight ongoing interest and varied analyst perspectives on Texas Instruments’ strategic initiatives and market positioning.

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