Summary
- Texas Instruments has a rock-solid business model sustained by unique competitive advantages in its industry.
- Free cash flow generation has been outstanding over the long term.
- The company rewards shareholders with generous buybacks and consistently growing dividends.
- The stock is very reasonably valued for such a high quality business.
- Even if the stock price is overheated in the short term, Texas Instruments is on track to deliver market-beating returns in the years ahead.
- This idea was discussed in more depth with members of my private investing community, The Data Driven Investor. Get started today »
Texas Instruments' (TXN) stock is on fire, the stock was rising by over 7% on Wednesday after the company announced better-than-expected earnings for the second quarter of 2019 the day before. The stock price could be too hot in the short term, but in terms of both quality and valuation, Texas Instruments is well-positioned for market-beating returns in the years ahead.
A Top Quality Business
Texas Instruments is an undisputed leader in analog and embedded processing chips. The company has built its business model around four key sources of competitive advantage: superior manufacturing technology, a broad portfolio of differentiated products, the broadest reach of market channels, and diversity and longevity of its products, markets, and customer positions.
This strategy has paid off in spades over the long term, as Texas Instruments has been able to increase free cash flow per share in the double-digits through the ups and downs in the business cycle.
Source: Texas Instruments Investors Relations
The company not only generates massive amounts of cash flow, but Texas Instruments is also deeply committed to returning those free cash flows to investors over the long term.
The company has increased its dividends for 15 years in a row, it even sustained its dividend growth policy during the great recession in 2008 and 2009, which is quite a display of fundamental strength coming from a company that operates in a highly cyclical market.
