Citi’s Glen Yeung is upgrading Texas Instruments (TXN) to Buy from Hold, reversing an earlier downgrade. Yeung has also boosted TXN’s target price to $39 from $31. FQ208 and FY08 estimates go to $0.46 and $1.99 from $0.45 and $1.56 respectively. Yeung is upbeat about TXN’s performance in handset:
Our field checks suggest that rolling forecasts from TI’s largest handset customer point to a significant increase in chip orders in 2H08 versus 1H08, driven by new product launch and depleted inventories. From an easy comparison in 1H08, we model an 18% increase in 2H08 DSP sales — this compares to normal seasonal increase of 13% — and we assert that consensus estimates should rise as this ramp comes to light.
TXN is also performing better with Nokia (NOK) than previously anticipated:
Meanwhile, our checks also indicate that TI is holding onto Nokia share better than anticipated. We note that 1) share loss at low-end has been pushed out, 2) EDGE share loss has also been delayed, 3) TI has opportunity to win analogue at Nokia. We believe that these issues are not well reflected in current consensus and contribute to our confidence for estimate increases.
Finally, Yeung sees a big opportunity for upside given TXN’s historically low valuation:
Y/Y revenue growth and upward/total estimate revision trend are both bottoming for TI, historically good indicators for share increase. Adding that decidedly negative sentiment is driving valuations to
near all-time lows, we believe TXN is poised for significant appreciation.
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