Group Problem Set 4 - Group_K

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1 Managerial Finance Professor - Dr. Sunny Onyiri Group Problem Set 2 Group K Date: 10/16/2021 By Venkata Krishna Anumula Guneet Banwait Yugandhar Chippala Vijay Gummadavelli Nikitaben Patel

2 Introduction Texas Instruments (TI) is based in Dallas, Texas that manufactures, designs, sells, and tests embedded and analog semiconductors for use in communication, personal electronics, automotive, enterprise, and industrial power systems. Embedded and analog processing are two of the company's key segments. The embedded processing section is arranged to handle separate activities and can be controlled to manage various power performance and cost combinations depending on the requirements. The analog processing section changes real-world signals such as pictures, pressure, temperature, and sound by amplifying and conditioning them. Such signals are then converted into a digital data stream that advanced semiconductors may utilize, such as embedded segment processors, as part of the process (Pourgholam et al., 2017). TI's financial picture TI is one of the corporations that has maintained an increasing dividend growth trend in the pre-covid-19 period. It is expected to be able to keep this trend in the coming financial year. This chipmaker's earnings predictions have been consistently higher than predicted in the last two economic reports (Matthews, 2016). According to financial data from the company's last two quarterly reports, the company has increased by an average of 16.25 percent over predicted forecasts. Texas Instruments' expected earnings per share in the second quarter of 2021 was $1.82, but the company earned $2.05, a 12.64 percent gain. Various financial analysts agreed on a per-share earnings forecast of $1.56 in the first quarter of 2021. Nonetheless, the reported earnings per share were $1.87, representing a 19.87 percent surprise margin. The figure below shows a time series graphic of the unexpected earnings per share. Figure 1: Texas Instruments' quarterly earnings per share (Yahoo Finance)

3 Based on the historical findings in figure 1, there has been an upward trend in recent predicted per-share returns for TI. Furthermore, the TI's Expected Surprise Prediction (ESP) is upbeat, which is a crucial predictor for earnings beat. This is especially significant if they are included in a portfolio. A closer examination of the stock reveals that it can yield up to 70% when paired with other performing assets. Pourgholam et al. (2017) state that in general, to achieve the consensus estimate, a portfolio of ten assets with similar performance to TI shares would require seven of them. The Zacks ESP earnings, for example, are a consensus estimate that matches the Zacks consensus projection in a given quarter with the most accurate estimate. To get a more precise d estimate, the Zack Consensus can be adjusted for change. The key idea of this estimate is that experts should not revise their projections once the most recent data has been revealed. This information is likely to be more accurate than that provided by other parties in the consensus projections.

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4 Texas Instruments' ESP earnings are currently at +9.22 percent. This indicates that analysts have recently gotten more optimistic about the company's earnings prospects. This upbeat attitude toward earnings suggests that a beat is on the way. It's worth mentioning that the negative value of the ESP earning metric diminishes its predictive potential; nonetheless, just because the ESP earning metric is negative doesn't mean there won't be any earnings. Most corporations can outperform the ESP consensus estimate, but this may not be the basis for a rise in stock value (Lu, 2018). Furthermore, some companies may continue to grow, even if they are not following the Consensus ESP forecast. TI is one of the technological and computer assets that outperforms the competition. It belongs to a sector group of 648 enterprises. The Zack Consensus Estimate rating is only based on earnings estimates and forecast revisions to produce stock with an improved yield perspective. This estimation system has been successful for a long time, and the assets in this sector appear to be in fantastic shape to outperform market expectations in each quarter of the year. According to historical data, the return on TI has been around 18.44 percent from the beginning of 2021. Technology and computer equities have gained 18.30 percent on average over the same calendar period. This percentage is a strong indication that TI has outperformed its peers through the third quarter of this year. TI is anticipated to retain its current level of success. Thus, technology and computer stock investors should pay closer attention to the company. Discussion Some of the most significant elements to consider for any investment in the technology and computer business are their control and impact on demand and supply in light of the worldwide semiconductor shortage. This topic has come up regularly in most earnings calls.

5 Texas Instruments' production facilities include a testing plant, an assembly factory, and a wafer fabrication unit, giving them a significant competitive advantage. If these plants were outsourced, the corporation would be able to control its inventories better. As a result, they may assist clients in meeting their demand concerns by delivering semiconductors on time. Their facilities can create chips with diameters of 200 and 300 millimeters, giving them a cost edge ( Clarke, 2020) . As a result, Texas Instruments' management has more freedom in terms of market share. This explains their unexpectedly strong performance in comparison to market expectations. The likelihood of growth in the value of a company's shares following an investment will be of primary importance to average investors. For the past 17 years, TI has increased its dividend payment to shareholders, and they have done so at a compounded annual growth rate of 26 percent. According to the company's press release, the dividend has increased by 13%, resulting in a per-share return of $1.15. Texas Instruments also has a free cash flow that can cover dividend payments for at least five years (Yang et al., 2019). This results in a current pay- out ratio of 54 percent, which is the ratio of dividends paid to net earned revenue in a given period. Conclusion Analysts have discovered Texas Instruments to surpass market expectations on multiple occasions. It has also reached its contemporaries in the technology and computing industries. The company's anticipated trend forecasts even more positive developments in the future. The management team has also shown a readiness to return capital to shareholders through dividends

6 and stock buybacks. This makes the company an ideal investment for those interested in the technology and computing industries.

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7 References Clarke, N. (2020). The timing of corporate buybacks: new evidence from repurchase series. SSRN Electronic Journal , 2 (234). https://doi.org/ 10.2139/ssrn.3537842 Lu, W. (2018). Application of absolute valuation methods of Chinese stock—a case study of the Hebei Gucheng increases group co., Ltd (NEEQ: 830837). DEStech Transactions on Economics, Business and Management , 2 (icems). https://doi.org/ 10.12783/dtem/icems2018/25614 Matthews, G. E. (2016). Stock-for-stock mergers: an empirical study of fairness determinations in fairness opinions. Business Valuation Review , 35 (4), 120–134. https://doi.org/ 10.5791/bvr-d-16-00015.1 Pourgholam, M., & Azizollah Ganji, B. (2017). A novel uncooled thermal imaging sensor using MEMS transistor. Microsystem Technologies , 23 (10), 5071–5078. https://doi.org/ 10.1007/s00542-017-3344-6 Yang, R. H., McDonald, B. A., & Li, Y. (2019). Investigation on the small signal characteristic based on the LLC hybrid hysteretic charge control. CPSS Transactions on Power Electronics and Applications , 4 (2), 128–142. https://doi.org/ 10.24295/cpsstpea.2019.00013

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