Chip stock Texas Instruments (NASDAQ:TXN) notched up fractionally in Tuesday morning’s trading after reports emerged that activist investor Elliott Investment Management bought in on Texas Instruments, picking up just over $2.5 billion worth of shares. And it’s already making demands.
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It wants Texas Instruments to bolster its free cash flow to $9 per share by 2026. That sounds ambitious by any scope, but Elliott thinks it has just the way to get there – a “dynamic capacity-management strategy.” Elliott also has issues with the capital expenditures plan that Texas Instruments brought out in 2022, noting that the plan called for Texas Instruments to ramp up capital spending from its original figure of roughly 5% of revenue to around 23% by 2026.
Overspending in General
Overspending seems to be the biggest issue that Elliott wants to address, and it was willing to park $2.5 billion in cash to get its point across. While certainly, capital expenditures can be a good play—you’ve got to keep the factories and such up to date—they can also take cash out of the system that could be used elsewhere. Elliott is looking for Texas Instruments to pull back on that plan somewhat.
That’s not a bad idea, really, especially given the state of the consumer market these days and how just about everybody is looking to cut spending. That will get back to Texas Instruments eventually, and being ready for that with more of a cash cushion likely couldn’t hurt.
Is Texas Instruments a Buy or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on TXN stock based on six Buys, 11 Holds, and six Sells assigned in the past three months, as indicated by the graphic below. After a 16.87% rally in its share price over the past year, the average TXN price target of $182.44 per share implies 9.03% downside risk.
