Analysts Shouldn't Mess With Texas (Instruments)

That went just fine!

We didn’t expect much from the day and we didn’t get much from the day in what Trader Mike is calling an "inside day" for the Nasdaq. All the Google excitement has pushed the stochastics into overbought territory so we are probably not going to take disappointment well from Yahoo (YHOO) tomorrow or Apple (AAPL) and Amazon (AMZN) on Wednesday. (Click chart to enlarge.).

Texas Instruments (TXN) already gave poor guidance after a very nice beat in Q1 (.49 vs. .43 expected). "We have become more conservative with our outlook for the second quarter," Texas Instruments Chief Executive Rich Templeton said in a statement. Note that TXN’s conservative guidance of .42-.48 a share for Q2 is still higher than the .41 -.45 they forecast in March, it’s just lower than the "analysts" estimates of .44-.51.

I’m putting quotes around the word analysts because they are the same idiots who missed TXN’s Q1 results by 15% and now TXN is going to sell off because the company is guiding the low end of the range below their "expert" opinions for next quarter??? This is kind of ridiculous, folks… Do you even know who these people are? Who are the 33 analyst who follow TXN for a living and miss their Q1 estimates by 15%? Not just the firms they work for, but who are these people?

The truth is that investors generally don’t know who it is that’s guiding the fate of multi-billion-dollar corporations. While the CEOs are chosen in some capitalist version of Survivor, an "analyst" can be a 20-year veteran or a 20-year old intern, yet the market often gives more weight to these nameless, faceless and often clueless workers than they do to the people who are paid many millions of dollars to run the company.

Of course we need some balance, as there are certainly some very incompetent and sometimes deceitful people running very large companies, but swinging the pendulum to give equal weight to whoever at some bank drew the short straw last Friday and had to work late and come up with an estimate for TXN’s $3.5Bn quarter is pretty unbalanced as well. Revenues were in-line but earnings were 15% over, so the results indicate that the analysts simply don’t understand the company they are following - yet the market reacts to everything THEY say.

• Jan 15th - Canaccocord Adams issues a "sell", TXN drops 8% from $30.46 to $28 on the 22nd.
• Jan 22nd - TXN has a 4% beat, the stick flies up 8% to $30.30 the next day.
• Jan 23rd - CitiGroup downgrades TXN from buy to hold, the stock drops from $30.73 to $29.41 in 2 days but holds.
• Feb 15th - BMO Capital initiates with Market Perform, no one cares.
• March 11th - Piper Jaffray downgrades from buy to neutral, the stock plunges 8% from $29.65 to $27.51 on the 17th.
• March 20th - Am Tech Research downgrades from buy to neutral, the following week the stock goes from that day’s high of $29.11 back to $28.05.

Since March 20th, the silence of the analysts had TXN drift back up to yesterday’s close at $30.59, which is about the right price given earnings and guidance. Left to their own devices, traders are far more efficient than analysts at arriving at a company’s correct value!

So let’s take these pronouncements with a huge grain of salt when we hear them. Just like with CitiGroup (C) back in March, there is no better opportunity than to bet against these "analysts" and the sheep who follow them as if they know something.

Comments

[RegTrader]

Incredible but a very factual analysis of these dumb analysts who think they know a lot!! I feel sorry for those hard working employees of TXN who are not rewarded well because of poor judgment by these analysts!!

[special1person]

T.I. has a long history of arrogance.

When engineers there proposed a IBM PC clone in a portable form, they threw the design back across the table and asked "Where is the Texas Instruments microprocessor?".

Of course, the rest if history..these engineers left T.I. and formed a little company called "Compaq".

T.I. has a market cap of 38 billion.

Compaq/HP now has a market capitilization of $47 billion.

Why do "suits" continue to think they are smarter than engineers?

Answer: Because they can screw the middle class, whereas engineers just think up new ideas in order to help people.

[PokerDonkey]

I take it you're an unappreciated engineer special1person.

I think equity analyst and politician are the only two careers where you can be totally wrong more than half the time, keep your job, and everyone still believes you know what you're talking about.

Analysts move their earnings expectations constantly, the companies they cover GIVE THEM GUIDANCE, and they still can't get it right. Pathetic.

[Bj2times]

I agree with the premise that most analyst are either incompetent or too lazy to do their jobs well. I don't understand why otherwise rational investors assign so much weight to their opinions. Jim Cramer says , correctly, that when a new company picks up it's 4th anaylst, its time to sell.

I make a practice of betting against these calls by buying the dips that occur after a critical statement and selling into the rebound that usually follows.

[get_real]

I hope everyone realizes that the $0.49 GAAP EPS was not a 'clean beat' considering that $0.06 was the impact of a deferred tax. Taking out this favorable tax impact actually brings the earnings right in line with Wall Street expectations.

Regarding analyst estimates for large established companies such as T.I. who are managed by true professionals... They basically tell the analysts where to set expectations for the following quarter. If you want to measure accuracy of estimates, you might find more value using analysts for small-cap companies.

[stockguitarguy]

Phil, you missed the boat by ragging on analysts. When you exclude the $0.06 one-time benefit TXN had in 1Q, the analysts' $0.43 was exactly inline with the firm's adjusted $0.43. If you had spent as much time analyzing the numbers as you did putting down analysts then you would've known this. Get a clue...