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Despite Q1 Beat, Why Did Texas Instruments Shares Tumble?
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Despite Q1 Beat, Why Did Texas Instruments Shares Tumble?

Texas Instruments (NASDAQ: TXN) reported stronger-than-expected Q1 results, topping both earnings and revenue estimates.

However, investors were disappointed by the outlook issued by the company for the second quarter, which fell short of the street’s expectations.

As a result, shares of the semiconductor company lost almost 5% in the extended trading session on April 26.

Q1 Beat

Markedly, adjusted earnings of $2.35 per share grew 26% year-over-year and significantly beat analysts’ expectations of $2.18 per share. The company reported earnings of $1.87 per share for the prior-year period.

Further, revenues jumped 14% year-over-year to $4.91 billion and exceeded consensus estimates of $4.74 billion. The increase in revenues reflected a surge in industrial and automotive revenues.

FY2022 Outlook

Based on Q1 results and lower demand due to the lockdown in China, management provided financial guidance for Q2FY2022.

For the second quarter, adjusted earnings are likely to range between $1.84 and $2.26 per share, while the consensus estimate is pegged at $2.27 per share.

Further, revenues are projected to be in the range of $4.2 billion to 4.8 billion, lower than the consensus estimate of $4.94 billion.

CEO’s Comments

Commenting on the strong cash flows, Texas Instruments CEO, Rich Templeton, commented, “This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter production.”

Wall Street’s Take

Following the results, KeyBanc analyst John Vinh lowered the price target on Texas Instruments to $220 (30.61% upside potential) from $240.

Overall, the stock has a Hold consensus rating based on five Buys, 10 Holds and two Sells. The average Texas Instruments price target of $187.31 implies 11.2% upside potential from current levels.

Conclusion

China’s recent lockdown especially in Shanghai has impacted manufacturing operations to a great extent.  

The company’s cautionary outlook despite the Q1 sales beat is attributed to lower demand, particularly due to COVID-19 restrictions in China.

The outlook may get boosted in the coming quarters on recovery of demand. Till then investors may choose to wait and watch.

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