Bernstein analysts downgraded Texas Instruments (NASDAQ:TXN) shares to Underperform from Market Perform with a price target of $145 per share.
They argue that Street models “still do not appear to contemplate the consequences of TXN's plans, and gross margin expectations appear far too high to us.”
“It seems highly likely to us that gross margins are headed toward the 60% level in short order (or worse) well below current expectations,” they wrote in a client note.
The analysts add that the Street consensus for Q4 revenue also looks too high, which yields “further near-term tactical risk to estimates above and beyond the gross margin trajectory.”
On valuation, they claim TXN stock is “already expensive” and “even more expensive than it looks given the sharp divergence between earnings and free cash flow, trading (on our current numbers) is at over 30x 2025 FCF.”
“We aren't suggesting TXN's strategy is "wrong" or "bad," they just have a longer investment horizon than most other companies. However, this horizon is also likely longer than many investors have as well,” they concluded.
TXN shares fell nearly 3% on Wednesday.