Texas Instruments (TXN) management may be the key to delivering shareholder value amid a "softer market" for semiconductors.
With news of the company's lowered guidance amid its expectation of tough sledding ahead, the market is sending shares down nearly 6% on the open. However, analysts are confident that the company's long-term thesis under its experienced executive management should help investors ride out the cycle downturn.
"The company will manage through the correction (shallow or deep) as they always do," Bernstein research analyst Stacy Rasgon wrote in a note on Wednesday. "TXN, as they typically do, should come out stronger than before."
He said that he expects the pain in shares at present to be short term, which should reward patient investors.
"In the meantime, while we wait, operational execution remains stellar and the capital-return story continues to play out," he said.
Rasgon acknowledged the sector-wide stink emanating from cyclical semiconductor stocks at the moment. "We recognize that many investors may not want to step into it (or any semi name right now)," he acknowledged. "That being said, even with a reasonably sizable near-term correction, we still see $6+ in earnings potential [for TXN] in the not-too-distant future, and the shares are currently trading among their cheapest relative to the S&P in the last five years (a timeframe that includes a number of other corrections)."
As such, he said the stock will be "one to own" as the most recent correction bottoms.
"We believe it is worth waiting for," he concluded, setting an outperform rating and a $115 price target.
Rasgon's analysis echoed the take from Rosenblatt Securities analyst Hans Mosesmann, who noted the long-term story for the company remains intact.
"Softer market conditions [are] not impacting strategic investment initiatives whatsoever," Mosesmann wrote on Wednesday morning. "Regardless of the duration of the current slowdown, TI will move forward with a new 300 mm wafer fab shell to be ready for equipment by the 2020/21 timeframe at a cost of $600-$800 million."
Mosesmann said that the company's continuing commitment to R&D is what sets it apart from other semiconductor stocks resigned to swoon in the slowdown. Additionally, he cited the company's strategy of "taking its medicine" early -- by lowering guidance and setting up more-achievable earnings estimates for next year.
"Relative to the usual garden-variety semiconductor company behavior into a down cycle, TI is not blinking," he said. "We think TI's guide is healthy and gives The Street what it wanted: a reset that would lead to achievable 2019 earnings."
Mosesmann reiterated his "Buy" rating for the stock, with a $120 price target.
It is still worth noting that both analysts, along with most of Wall Street, cut their price targets.
Given the impact of the slowdown ahead, Mosesmann trimmed his target from $140 to $120 while Rasgon tempered his estimate from $130 to $115.
Nonetheless, as the stock treads water below $95 per share on the open, either price target would offer an attractive opportunity for investors with a stomach strong enough for semis.