Christopher Rolland, Analyst with FBR Capital Markets & Co., says he is waiting for a modest reset in the semiconductor cycle. He expects to see some intermediate-term choppiness, followed by a modest cyclical downturn in 2015. If that scenario plays out, he says Texas Instruments Incorporated (TXN) will be one of the first companies he would consider upgrading.
“There are a bunch of things that we like about TI: We like that they bought a ton of capacity at the bottom of the last cycle during the financial crisis primarily,” Rolland says. “They still are only running in the 60% utilizations level. If a semi cycle was to get really hot, they would be one of the few people to actually have capacity. That’s one thing we like about them.”
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Rolland also says there is a mismatch between TI’s depreciation that they realize on their income statement and the ongoing capex reflected on their cash flow statement.
“So we see a nice mismatch between free cash flow and earnings per share that — we happen to be cash flow guys,” Rolland says. “We are very attracted to that high free cash flow yield and the fact that earnings are actually understated by TI.”
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