Texas Instruments Incorporated (TXN)

Conclusion

Texas Instruments designs, manufactures and sells analog and embedded processing semiconductors to electronics designers and manufacturers in industrial, automotive, personal electronics and communications markets. At a price of 295.73 USD on 2026-11-09, the market capitalisation is 270.4 billion USD and the enterprise value is 275.8 billion USD.

The verdict is overvalued. The P/E stands at 38.0 against a ten-year median of 24.7, and EV/EBITDA at 25.2 against 17.0. The discounted cash flow gives 88.80 USD per share at a discount rate of 11.8%. The fair value band runs from 114.78 to 172.17 USD with a midpoint of 143.48 USD, a margin of safety of -51.5% at the current price. The reverse DCF implies growth of 20.9% a year, while revenue grew at a five-year CAGR of 4.1% and free cash flow per share fell at a five-year CAGR of -13.5%.

What holds the case up is the balance sheet, with an Altman Z-score of 13.0 and net debt to EBITDA of 0.49, and returns, with ROIC of 31.0% against a WACC of 11.5%. What would break it is weak per-share growth: the five-year EPS CAGR is -1.8%, and the five-year free cash flow conversion is only 53.8%. The valuation premium adds to the risk, with the P/E 53.7% above its ten-year median.

Financial health

Financial strength is green, held up by a high Altman Z-score of 13.0, a net debt to EBITDA of 0.49 and interest coverage of 15.4, with a current ratio of 5.6 and a quick ratio of 3.6 adding liquidity. Debt to equity is 0.71. The Altman model was designed for manufacturers, and Texas Instruments is a chip manufacturer, so its zone of safe applies directly. Insolvency risk is low, at about 0.1% by the estimate of the Ohlson model over one to two years. The balance sheet gives the company room to absorb a downturn in revenue without strain on its debt.

Earnings quality

Earnings quality is yellow. Piotroski scores 7 of 9 and the accrual ratio is -6.1%, which points to cash earnings behind reported profit. Free cash flow conversion is 102.9% on a trailing basis, but only 53.8% over five years, so the trailing figure flatters the longer record. Stock-based compensation is 2.6% of revenue, and free cash flow after it is 6.78 billion USD. The share count fell at a five-year CAGR of -0.4%, which reflects buybacks. The Beneish M-score is not available. Earnings beat estimates in 7 of the last 8 quarters, with an average surprise of 9.6%. Estimates for the current year were revised up by 6.5% over 90 days with no downgrades in the last 30 days, and next year's estimates rose 15.4% over 90 days.

Profitability

Profitability is green. The operating margin of 40.8% sits in line with its ten-year median of 40.7%, while the gross margin of 60.2% is below its median of 63.9% and the net margin of 34.3% is below its median of 35.1%. Operating margin stability is 12.6%. The key figure is ROIC of 31.0% against a WACC of 11.5%, so the company creates value, with a ROIC minus WACC of 19.5%. Return on equity of 37.1% is helped by leverage. The DuPont split for 2025 shows a net margin of 28.3%, an asset turnover of 0.51 and an equity multiplier of 2.13, so most of the return comes from margins and not from debt.

Growth

Growth is yellow. Revenue CAGRs are -4.1% over three years, 4.1% over five years and 3.1% over ten years, and revenue grew in 7 of the last 10 comparable years. EPS shows a weaker record, with CAGRs of -16.6% over three years, -1.8% over five years and 6.7% over ten years. Free cash flow per share fell at -23.6% over three years, -13.5% over five years and -2.2% over ten years. Next year's EPS estimate carries growth of 27.3%, which is a sharp rebound from a shrinking base and rests on the forecasts being met.

Valuation

Valuation is red. The multiples sit well above their ten-year medians: P/E 38.0 against 24.7, a premium of 53.7%; EV/EBITDA 25.2 against 17.0, a premium of 48.4%; price to free cash flow 36.9 against 27.0, a premium of 36.9%; price to sales 13.0 against 8.7, a premium of 49.2%; price to book 14.1 against 11.7, a premium of 20.5%. The discounted cash flow gives 88.80 USD per share at a discount rate of 11.8%, with growth of 4.1% for five years and 2.5% in perpetuity, and the terminal value makes up 42.9% of it. The fair value band is 114.78 to 172.17 USD, with a midpoint of 143.48 USD and a margin of safety of -51.5% at 295.73 USD. The fair value from historical multiples is 198.16 USD. The reverse DCF implies growth of 20.9%, against revenue CAGR of 4.1% over five years. The dividend yield is 1.9%, and the payout on free cash flow is 70.7%.

Risks

A fall in per-share earnings or cash flow is the main risk, since the five-year EPS CAGR is -1.8% and free cash flow per share fell at -13.5% over five years. If earnings keep shrinking, the 27.3% EPS growth in the next-year estimate would have to arrive to justify the price. A rerating toward the ten-year median multiples would be a further risk, given the P/E premium of 53.7%. The DCF depends for 42.9% on the terminal value, so small changes in the long-term growth or discount rate move the result considerably. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue by segment, so it cannot judge refinancing timing or which product lines drive growth. The fair values rest on fixed assumptions, a 5% equity risk premium and capped growth, and they are an order of magnitude, not a price target.