Texas Instruments Expects Free Cash Flow to Grow in 2026, Elliott By Investing.com Comment

Texas Instruments (NASDAQ: ) said in a conference call with analysts on Tuesday that it anticipates significant growth in free cash flow (FCF) through 2026, driven by a recovery in demand and a more disciplined approach to capital spending, as a result of pressure from the activist. investor Elliott Investment Management.

In recent years, Texas Instruments has focused on expanding production capacity to avoid the kind of chip shortages experienced during the pandemic and to meet future demand.

However, this strategy caught the eye of investors as the associated expenses put a strain on cash flow.

The company now expects FCF per share to reach between $8 and $12 by 2026, according to a report from Reuters, beating the consensus estimate of $6.91.

This projection comes after a significant decline in FCF per share to $1.47 in 2023.

Elliott Investment Management, which disclosed a $2.5 billion stake in Texas Instruments in May, previously urged the company to optimize spending and adjust production capacity in response to fluctuating demand. Elliott had suggested these measures could boost FCF to $9 per share by 2026.

Reuters added that the company is currently working to bring more production in-house, with three new chip manufacturing facilities under construction amid improving market conditions.

During the conference call with analysts, Reuters said CEO Haviv Ilan explained that the expected increase in FCF was largely due to the structured expansion of production capacity of 300 million.

This transition is expected to be completed by 2026, allowing the company to reduce its investments.

Reuters added that for 2026, Texas Instruments expects revenue to be between $20 billion and $26 billion, with capital expenditures estimated at $2 billion to $5 billion, down from the plan its previous plan to spend about $5 billion annually through 2026.

The company will maintain its $5 billion in capital spending through 2025 and is also set to receive up to $1.6 billion for the construction of new facilities under the US CHIPS and Science Act.

Following the news, Elliott said in a statement that it congratulates Texas Instruments on its capital allocation update, which reaffirms the company’s “longstanding commitment to shareholders that long-term growth in free cash flow per share is the company’s true north.” .”

“As detailed in our May 28 letter to the board, we support TI’s strategy to build the world’s largest 300mm analog semiconductor capacity footprint in the US and believe today’s update is well aligned with Elliott’s proposed approach .” Elliott added.

“We value our continued and constructive dialogue with Texas Instruments and believe today’s off-cycle capital management event is another positive step toward the goal of creating long-term value for all shareholders.”

Shares of Texas Instrument were up about 0.3% at the time of writing.