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Texas Instruments

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Nick Robertson

on 9 March 2016

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Transcript of Texas Instruments

Texas Instruments' Risks
How We Achieved the Numbers
Specific Risks to TI
Texas Instrumental Risks
Show Me The Work!
Margins may vary over time.
High competition requires rapid response to new products and pricing pressures.
Loss of, or significant decline of purchases by any large customer could cause a significant decline in revenue.
Distributors’ promotion of competing product lines can intrude on TI's market share.
The ability to successfully implement business and organizational changes could affect business plans and operations
Monday, March 7, 2016
Vol XCIII, No. 311
About the Company
TI Compared to the Industry
Founded in 1930 under the name Geophysical Services Inc. The name was changed to Texas Instruments (TI) in 1951. They have over 31,000 employees and are headquartered in Dallas Texas. TI produced the first transistor radio in 1954 and introduced the first integrated based circuit board for the Air Force in 1961. Since then they have been the pioneers of innovation in the semiconductor industry. The company has been paying dividends since 1962 and continues paying even today with a projected $1.52 per share dividend and 45% payout ratio in 2016. The current stock price is $55.
Current PE Ratio 18.8
Expected PE Ratio 17-19 through 2020
Industry PE Ratio Average 15.8
Estimated 17 PE Ratio & Growth Rate 5.41%
Calculated stock price of $63.27 in 2020, discounted to $44 today
Texas Instruments
They currently operate in 35 different countries. TI is made up of two divisions: Semiconductors (SC) and Educational Technology (ET). TI's semiconductor division is by far the largest in terms of revenues, at 96%, and is divided into two primary subdivisions: 1) analog semiconductors and 2) DSPs or digital signal processors. The educational technology division accounted for only 4% of TI's revenues but many are familiar with Texas Instruments name through the ubiquity of the ET divisions hand-held graphing calculators. According to the Washington Post, Texas Instruments owns 93 percent of the US market for graphing calculators thanks to the TI-84 model. TI has been able to monopolize the market of graphing calculators and charge premium prices for their goods. These calculators are commonly seen in high schools and colleges across the United States.

Texas Instruments and Globalization
Texas Instruments Explained
Global operations subject them to complex laws, regulations, policies and risks.
TI is subject to interest & exchange rate changes and market demand changes in foreign countries.
Global Risks
Industry risks
Business cycles in the semiconductor market may affect performance.
The technology industry is rapidly changing and requires new ideas and products to stay relevant.
Declining demand in certain markets could have an adverse effect on the industry.
Beta calculation
Relative Value
Residual Income
Beta Calculation
We found the equity beta by using the program Gretl.
The weekly average stock price from the last six years was taken from Yahoo Finance for the S&P 500 and TI.
We then used the first difference of each to calculate the percent change from year to year. We then ran a regression to find the beta.
Market Risk Premium
We researched many articles on calculations. We found that the consensus was that depending on the formula used, a fairly wide variation of premiums could be found. We decided to use the high end of the spectrum due to the bull market and determined the Market Risk Premium to be 6%. We will provide a sensitivity analysis to show the variations.
The dividend discount model's most difficult issue was deriving an accurate growth rate (g).

Dividend Growth Model

Texas Instruments plans on distributing $1.52 per share to shareholders in 2016 according to the TI website. This is an increase of 8.57%. We estimate that the dividend growth will follow the EPS growth we estimated of 5.41% after next year and continue at that rate into the future. Using these estimates, we came up with a value of $35.78.

EPS growth from 2016-2020 is estimated at 6.25% per year
Dividend growth was determined to be 8.57% for 2016 (ti.com).
The Resulting G
The growth was determined by using a combination of the Value Line expected growth (6.25%) for the next four years and the historical average EPS growth (4.56%) for the past 5 years. We split the difference to come up with 5.41%.
Nick Robertson & Jenna Marvin
TI Compared to the Industry
2015 EPS of $2.86
Current Book Value of $9.80/per share
Assumed EPS Growth of 5.41%
Residual Income Model
To Buy, or Not to Buy?
Dividend Discount Model = $35.78
Relative Value Model = $44.00
Residual Income Model =
Today's Price = $55.50
Using conservative estimates we would suggest selling TI stock as it is overpriced currently in today's market.
Po = B0 + {[(EPS0(1+g) – B0 * k)] / (k-g)}

= 9.80 + {[2.86(1.0541) – (9.80 * .095)] / (.095 - .0541)}

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