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Brokers: Exane identifies Maxim as potential acquisition for Texas Instruments

Last updated: 16:00 04 Aug 2016 BST, First published: 11:00 04 Aug 2016 BST

Semiconductor

French bank Exane BNP Paribas has abandoned its bearish stance on Texas Instruments Incorporated (NASDAQ:TXN) and turned neutral on the semiconductor giant.

Despite its concerns that the stock’s valuation was already demanding and that growth would be lacklustre, the share price has motored, driven by strong margin improvement, free cash flow and a return of cash to shareholders.

From a mere 15% in 2012, Exane expects the group’s earnings before interest and tax (EBIT) margin to hit a record high 34% this year.

Exane says the company will need to grow its revenues, which won’t be easy as the bank expects the Communications Equipment division, which accounts for 13% of sales, to lose market share.

An acquisition could be the remedy, the bank argues, and names Maxim Integrated Products Inc (NASDAQ:MXIM) as a suitable partner. The acquisition of Maxim would enhance earnings, but would require significant operating expenditure and manufacturing synergies from Texas Instruments’ fabrication plant to “bring the deal into positive value creation territory”.

Exane has upped its target price to US$66 and switched to a neutral rating, to reflect a higher margin fall-through and a lower weighted average cost of capital.

Shares in the Callaway Golf Co (NYSE:ELY) are already close to their 52-week high, but news that sporting goods giant Nike is to exit the golf club, ball and bag business is a “major share gain opportunity” for the stock, according to Jefferies.

Throw in the news in May that Adidas plans to sell its portfolio of golf brands and the time is ripe for Callaway to gain market share.

The shares currently trade at US$10.58, just 20 cents below the 52-week high, and Jefferies envisages the shares rising as high as US$14 over the next 12 months or so.

The June quarter for media group Viacom Inc (NASDAQ:VIAB) was generally in line with company guidance, but Wedbush is concerned that the outlook for the current quarter is below what it was expecting.

“On [the analysts’] call, management said it expected domestic advertising to decelerate in the September quarter from down 4% this quarter,” Wedbush said, adding that it had expected a 2% decline.

The broker expects share repurchases to resume next year, and assumes that a sale of the company’s stake in Paramount could facilitate this.

It reiterated its price target of US$44 – round about where the shares currently trade – based on a price/earnings ratio that it is at a substantial discount to Viacom’s peers, reflecting sub-par growth in advertising revenues and the greater volatility of the economics of the broadcaster’s youth-oriented TV network portfolio.

Canadian broker Mackie Research is warming to Iamgold Corp (TSE:IMG), whose share price has responded well to a rise in the gold price.

It does admit that, other than as a proxy for the gold price, the company is “rather boring”.

Nevertheless, the price target has been hiked to C$6.60 from C$4.50 and the recommendation has changed from ‘sell’ to ‘hold’.

“With a flat production profile Iamgold has become effectively a proxy for gold price expectations,” the broker said.

 

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