It has been about a month since the last earnings report for Texas Instruments (TXN Quick QuoteTXN - Free Report) . Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Texas Instruments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Texas Instruments Beats on Q2 Earnings

Texas Instruments reported second-quarter 2020 earnings of $1.48 per share, which surpassed the Zacks Consensus Estimate by 68.2%. The bottom line was also higher than management’s guided range of 64 cents to $1.04 per share. Further, the figure improved 8.8% year over year and 19.3% sequentially.

The company reported revenues of $3.24 billion, which beat the Zacks Consensus Estimate by 9.3%. The top line also came within management’s guided range of $2.61-$3.19 billion.

However, the figure declined 12% from the year-ago quarter and 2.7% from the prior quarter.

Sluggishness in the company's Analog and Embedded Processing segments, and softness in the automotive market owing to coronavirus-led disruptions impacted the top line negatively.

Nevertheless, uptrend in personal electronics and industrial markets acted as a tailwind for the company during the quarter under review.

However, uncertainties related to ongoing pandemic remain a concern.

Nevertheless, the company’s strong investments in new growth avenues, and research and development activities are positive.

Moreover, Texas Instruments is likely to address the rising unforecasted demand in the current scenario well on the back of short lead times and high availability of products for immediate shipment. Further, the company remains confident on its portfolio of long-lived products and efficient manufacturing strategies. Additionally, continuous returns to shareholders are likely to help the stock rebound in the near term.

End-Market in Detail

Texas Instrument’s revenues were down 40% in the automotive market on year-over-year basis owing to ongoing coronavirus pandemic.

Further, revenues in the communications equipment space decreased 15% from the year-ago quarter.

Nevertheless, the company witnessed 10% growth in the personal electronics market compared with the year-ago quarter owing to coronavirus induced increasing work-from-home trend.

Further, it exhibited year-over-year growth of 2% in the industrial market during the reported quarter, thanks to strong medical space.

Segments in Detail

Analog: The company generated $2.43 billion from this segment (75.1% of total revenues), which decreased 4% from the year-ago quarter. This can be attributed to weak performance of high-volume and power product lines during the reported quarter.

Embedded Processing: This segment generated $546 million revenues (16.9% of total revenues), down 31% year over year. This was primarily owing to weak performance of processors and connected microcontrollers.

Other: Revenues in this segment were $259 million (8% of total revenues). The figure was down 25% from the year-ago quarter.

Operating Details

Texas Instruments’ gross margin of 64.2% contracted 10 basis points (bps) from the year-ago quarter.

Selling, general and administrative (SG&A) expenses expanded 100 bps year over year to $401 million in the reported quarter. Further, research and development expenses expanded 110 bps from the year-ago quarter to $379 million.

Operating margin was 37.9%, contracting 320 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2020, cash and short-term investments balance came in $4.9 billion, which increased from $4.7 billion as of Mar 31, 2020.

At the end of the reported quarter, the company had long-term debt of $6.2 billion, up from $5.5 billion in the prior quarter.

The company generated $1.7 billion of cash from operations, up from $851 million in the previous quarter.

Capex was $130 million in the second quarter. Further, free cash flow stood at $1.6 billion.

Additionally, Texas Instruments paid out dividends worth $823 million during the reported quarter. Further, it repurchased shares worth $882 million.

Guidance

For third-quarter 2020, Texas Instruments expects revenues between $3.26 billion and $3.54 billion.

Earnings are expected in the range of $1.14 to $1.34 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 37.31% due to these changes.

VGM Scores

At this time, Texas Instruments has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Texas Instruments has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.