Look to Texas Instrument’s $12 Billion Stock Buyback as Opportunity in Semiconductors

Michael Schoonover, COO & Portfolio Manager
Michael Schoonover is Chief Operating Officer of Catalyst Capital Advisors LLC and Rational Advisors, Inc. and Portfolio Manager of a share buyback strategy fund at Catalyst Funds. He began his association with Catalyst in 2011 as a research consultant supporting the implementation and back testing of quantitative strategies. In March 2013, he became a senior analyst at Catalyst to provide investment research for several mutual funds. From 2005-2011, he served in various technical and scientific management roles with the Perrigo Company. Mr. Schoonover has an MBA with high distinction from the University of Michigan Ross School of Business and a BS from the University of Michigan.

TXN’s $12 Billion Buyback is Largest in September

The semiconductor sector is down -3.28% versus the S&P 500 Index up +8.33% since the end of May when it started to become apparent that chipmakers might be the losers in a trade war with China. For semiconductor companies with strong financials, discounted stock prices have presented a good opportunity to authorize buyback plans.

Figure 1: Semiconductors have lagged since May after becoming a potential trade war target.

On July 26, Qualcomm (QCOM) announced a $30 billion buyback after terminating its proposed deal to acquire NXP Semiconductors. CEO Steve Mollenkopf told CNBC, “I think we got caught up in a trade war.” On September 13, Qualcomm announced a $16 billion accelerated share repurchase program, allowing it to more quickly purchase shares under the previous authorization. QCOM rallied +26.69% versus the S&P 500 Index return of +2.98% since authorizing the buyback.

Figure 2: After getting caught up in the trade war, Qualcomm’s $30 billion buyback has paid off for investors.

Following Qualcomm, Texas Instruments (TXN) announced a $12 billion share buyback September 20, the largest buyback so far this month. The buyback occurs with a 24% dividend increase, marking 15 consecutive years of dividend increases. In a statement to investors, TXN emphasizes, “Dividend increases and share repurchases are integral pieces of TI’s capital management strategy, reflecting the company’s continued strength in free cash flow generation and its commitment to return excess cash to shareholders.” Jefferies analyst Mark Lipacis says, “Texas Instrument’s policy to return 100% of its free cash flow and cash from stock exercise is best practice in the semiconductor space.”

If QCOM is any indication, TXN may now be a good investment opportunity for those looking to take advantage of the beaten-up semiconductor sector.