Pacific Crest Sees Growth Peak For Texas Instruments

Odd report Monday from Pacific Crest analyst Michael McConnell, who has a $38 price target on shares of cell phone chip maker Texas Instruments (TXN), and an “Outperform” rating, but nonetheless worries that TI may be becoming an “opportunity cost” for investors, as its growth is peaking. But he’s not exactly saying what you should do with the stock.

Specifically, McConnell says his checks confirm that TI is losing the top spot as microprocessor supplier to Nokia (NOK), and that as a result of that, and other factors, TI’s growth will cool in 2009. Writes McConnell: “We have confirmed that TI’s OMAP3 application processor will lose its first-source status to ST Microelectronics'’ (STM) Nomadik application processor on Nokia’'s Symbian-based handset platforms in 2009.” As a result, “Q4 could represent a near-term peak in company fundamentals, with a higher likelihood for both revenue and EPS growth deceleration in 2009.”

McConnell sees 22% earnings growth from $1.78 this year to $2.18 at the end of 2008, but then sees earnings dropping off to 14%, to $2.48, in 2009.

So what should you do? Hmm. That’s the confusing part. McConnell doesn’t say, exactly, but he lists a risk-reward scenario for TI shares. The shares are currently at 15.6x his estimated profit of $2.18 next year. If the stock were to see multiple expansion to 22.4x, its median multiple over the last five years, the stock could rise 44%. If the stock were to revisit its low multiple of 15x, it could decline by about 4%. McConnell doesn’t say which of those things will likely happen.