Is Texas Instruments Incorporated (NASDAQGS:TXN) Overvalued at 9.91x Price To Sales?


Texas Instruments Incorporated (NASDAQGS:TXN) is currently trading at $148.22, at approximately 95.1% of its 52-week high of $155.88. With the stock price up 28.3% in the last year, investors are worried that the company is getting too expensive. So, is Texas Instruments Incorporated overvalued? In this article, we’ll discuss Texas Instruments Incorporated’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering Texas Instruments Incorporated’s latest twelve months revenue/share of $14.96 and using the company’s 5-year average price to sales of 6.48x as a benchmark, we have a fair value of $97.00, which is -34.6% lower than the current price.

With no surprise, we can see that Texas Instruments Incorporated’s price to sales of 9.9x is much higher than its 5-year average of 6.5x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart Engine

Absolute Valuation: Texas Instruments Incorporated DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze Texas Instruments Incorporated with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 1.5%, an average EBITDA margin forecast of 44.4%, a discount rate of 9.0%, and a terminal EBITDA multiple of 20.4x, we get a fair value of $115.7.

So, Is Texas Instruments Incorporated Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, Texas Instruments Incorporated’s fair value is $111.22, representing a -25.0% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: Texas Instruments Incorporated

Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing.

The Analog segment offers power products to manage power requirements in various levels using battery management solutions, portable components, power supply controls, point-of-load products, switches and interfaces, integrated protection devices, high-voltage products, and mobile lighting and display products.

This segment also provides signal chain products that sense, condition, and measure signals to allow information to be transferred or converted for further processing and control for use in end markets, including amplifiers, data converters, interface products, motor drives, clocks, and sensing products.; and high volume products comprising integrated analog and standard products, which are primarily for sale into personal electronics, industrial, and automotive markets.

The Embedded Processing segment offers connected microcontrollers, such as microcontrollers, microcontrollers with integrated wireless capabilities, and stand-alone wireless connectivity solutions that are used in electronic equipment; digital signal processors for mathematical computations; and applications processors for specific computing activity.

This segment offers products for use in various markets, such as industrial, automotive, Personal electronics, communications equipment, enterprise systems, and calculators and other.

The company also provides DLP products primarily for use in projectors to create high-definition images; calculators; and application-specific integrated circuits. Texas Instruments Incorporated markets and sells its semiconductor products through direct sales and distributors, as well as through its website. The company was founded in 1930 and is headquartered in Dallas, Texas.- VIEW LESS

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