Taiwan Semiconductor Mfg. (TSM) vs. Texas Instruments (TXN) Critical Analysis

Texas Instruments (NASDAQ: TXN) and Taiwan Semiconductor Mfg. (NYSE:TSM) are both large-cap computer and technology companies, but which is the better business? We will contrast the two companies based on the strength of their dividends, analyst recommendations, earnings, institutional ownership, profitability, valuation and risk.

Institutional & Insider Ownership

83.7% of Texas Instruments shares are held by institutional investors. Comparatively, 19.5% of Taiwan Semiconductor Mfg. shares are held by institutional investors. 1.0% of Texas Instruments shares are held by company insiders. Comparatively, 1.1% of Taiwan Semiconductor Mfg. shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Valuation & Earnings

This table compares Texas Instruments and Taiwan Semiconductor Mfg.’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Texas Instruments $14.96 billion 6.72 $3.68 billion $3.60 28.32
Taiwan Semiconductor Mfg. $32.11 billion 6.87 $11.27 billion $2.26 18.82

Taiwan Semiconductor Mfg. has higher revenue and earnings than Texas Instruments. Taiwan Semiconductor Mfg. is trading at a lower price-to-earnings ratio than Texas Instruments, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Texas Instruments and Taiwan Semiconductor Mfg.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Texas Instruments 24.61% 40.83% 26.01%
Taiwan Semiconductor Mfg. 35.08% 24.18% 17.75%

Volatility & Risk

Texas Instruments has a beta of 1.24, suggesting that its stock price is 24% more volatile than the S&P 500. Comparatively, Taiwan Semiconductor Mfg. has a beta of 0.85, suggesting that its stock price is 15% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Texas Instruments and Taiwan Semiconductor Mfg., as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Texas Instruments 0 14 13 0 2.48
Taiwan Semiconductor Mfg. 0 4 4 0 2.50

Texas Instruments currently has a consensus price target of $110.54, suggesting a potential upside of 8.43%. Taiwan Semiconductor Mfg. has a consensus price target of $27.00, suggesting a potential downside of 36.52%. Given Texas Instruments’ higher probable upside, equities analysts plainly believe Texas Instruments is more favorable than Taiwan Semiconductor Mfg..

Dividends

Texas Instruments pays an annual dividend of $2.48 per share and has a dividend yield of 2.4%. Taiwan Semiconductor Mfg. pays an annual dividend of $0.92 per share and has a dividend yield of 2.2%. Texas Instruments pays out 68.9% of its earnings in the form of a dividend. Taiwan Semiconductor Mfg. pays out 40.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Taiwan Semiconductor Mfg. has increased its dividend for 3 consecutive years.

Summary

Texas Instruments beats Taiwan Semiconductor Mfg. on 9 of the 17 factors compared between the two stocks.

Texas Instruments Company Profile

Texas Instruments Incorporated designs, makes and sells semiconductors to electronics designers and manufacturers across the world. The Company operates through two segments: Analog and Embedded Processing. As of December 31, 2016, the Company had design, manufacturing or sales operations in more than 30 countries. The Company’s Analog segment’s product line includes High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA) and Silicon Valley Analog (SVA). HVAL products support applications, such as automotive safety devices, touchscreen controllers, low-voltage motor drivers and integrated motor controllers. The Company’s Embedded Processing segment’s product line includes Processor, Microcontrollers and Connectivity. Processor products include digital signal processors (DSPs) and applications processors. DSPs perform mathematical computations to process digital data.

Taiwan Semiconductor Mfg. Company Profile

Taiwan Semiconductor Manufacturing Company Limited (TSMC) is a semiconductor foundry. The Company is engaged in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. It operates through foundry segment. The foundry segment is engaged in manufacturing, selling, packaging, testing and computer-aided design of integrated circuits (IC) and other semiconductor devices and the manufacturing of masks. It operates three 12-inch wafer fabs, four eight-inch wafer fabs, one six-inch wafer fab (fab 2) and two backend fabs (advanced backend fab 1 and 2). It also manages two eight-inch fabs at its subsidiaries, WaferTech, LLC in the United States and TSMC China Company Limited. Its exploratory work focuses on transistors and technologies, such as three dimensional (3D) structures, strained-layer complementary metal-oxide semiconductor (CMOS), high-mobility materials and 3D IC devices.

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